Mumbai: Small-cap funds have come under the spotlight after it is offering just over 28 percent returns in the last three years. The returns on these funds are the highest in the equity segment. These funds have the potential to generate higher returns if an investor has the patience to tolerate volatility and is ready to take some extra risk.
According to Value Research, a mutual fund tracking firm, small-cap funds are offering 28.59% in the last three years. Twelve schemes in this category are giving returns of more than 30 percent, of which Quant Small Cap Fund is offering the highest returns of 44.11 percent, which is followed by Bank of India Small Cap Fund offering 38.90 percent and Canara Robeco Small Cap Fund with 38.61 percent returns. While Aditya Birla Sun Life Small Cap fund is offering 18.20 percent returns.
As per SEBI’s mandate, the small-cap fund invests a minimum of 65% of the corpus in equity and equity-related instruments of small-cap companies. These companies are ranked below 250 in terms of market capitalization.
“Before the volatility set in the equity market post-Geo Political crisis, the broad market rally had begun on expectations of growth in the economy to return. On the back of the post-pandemic economy opening trade, small-cap companies began to find traction from Money manager. Second small and mid-size companies were also benefiting out of low-interest regime on the back of high liquidity in the system,” said A Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC.
Investment Managers say small-cap funds are risky because they invest in stocks of very small companies. These companies are more volatile in nature than large-cap or mid-cap companies. Investors investing in these funds should have a long-term investment horizon to generate better returns.
Small cap schemes generally come with higher risk from the volatility point of view, however, they tend to perform well, in the long run, compared to large-cap companies and therefore these schemes should be considered for investment as part of the asset allocation with a goal to stay invested through all cycles.
IANS
