Small cap funds much like small cap stocks have been in favour and despite the run up there is seen more upside in them. Though in a yearly or year to date basis, the index -small cap index has outperformed, there are seen significant drawdowns and hence one should go for a long term probably at least of 3 to 5 years.
So, here we put forth the various aspects of small cap funds:
Pointers to note when investing in small cap funds
Remember the volatility should not be confused with risk, in the long term small cap funds can reap good returns.
As India growth story looks promising, in the current positive domestic economic cycle, the scenario and prospects for small and mid caps looks good.
Nonetheless, those looking to invest in small caps should be discounting the fact that after a significant run up in the last 1-year one should lower down or moderate their expectations on return from the asset class category.
Who should invest in small cap funds?
Those investors who are able to understand market dynamics and economic cycle and have a longer term horizon can consider investment into small cap funds.
Also, one should be willing to take on the risk as well as likely volatility in these counters in which these funds are invested into. Note as per the SEBI's mandate, small cap funds are required to invest 65 percent of the corpus into small cap stocks.
Top performing Small cap funds based on 3-year performance
|Small cap funds||3-year returns|
|Quant Small cap fund||41.48%|
|Kotak small cap fund||36.41%|
|Axis small cap fund||34.76%|
|ICICI Prudential small cap fund||32.56%|
|Union Small cap fund||30.70%|
Should you be investing in small cap funds in the given scenario?
The India growth story looks promising and given the momentum that it is extending small cap funds can be lapped up for good enough returns over a period of time. Though return expectations should be narrowed down. Also, monetary policy reversal by global banks can be another risk which is down to come in some time.