Every 2 out of 3 mid and smallcap mutual funds fail to beat benchmarks. Should you still invest?
small cap funds respectively have underperformed against their respective benchmarks in the last three years, an analysis of the performance by ETMutualFunds showed.
There were around 25 mid cap funds that have completed three years of existence in the market. Out of these 25 mid cap funds, 21 funds failed to beat their respective benchmarks in the said period indicating an underperformance of 84%. Only four mid cap funds managed to outperform their respective benchmarks.
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Around 22 small cap funds have completed three years of existence in the market. Out of these 22 small cap funds, 15 funds underperformed against their respective benchmarks in the said period. This indicated an underperformance of 68% by the small cap funds in the last three years. In other words, only seven funds managed to beat their respective benchmarks.
What factors led to this underperformance? Why is it difficult to get good returns in the small and mid-cap space?
“Mid and small cap stocks are typically more volatile compared to large cap stocks. Economic fluctuations, political changes and global market trends can cause significant price swings in these stocks, leading to inconsistent performance. Economic conditions or sector-specific challenges can disproportionately affect these stocks. Therefore, managing these funds requires a deep
