Mutual funds: Invest in small-cap funds via STP, SIP

financialexpress.com:

Retail investors are betting big on small-cap funds as the category constitutes more than 50% of net inflows of actively managed equity fund categories. They should now preferably deploy money in these funds in a staggered manner through systematic investment plans (SIPs) or systematic transfer plans (STPs) and avoid lumpsum investments as valuations are turning expensive and the Nifty Smallcap 250 Index is at its all-time high.

As the Nifty Smallcap 250 Index has given returns over 30% returns since April this year, there has been a surge in small-cap fund inflows as a result of this strong performance. While small-cap funds can work better for investors with a long-term perspective, they must be watchful of the volatility. Moreover, investors must not go overboard on small-cap funds as these can have an impact on the overall portfolio and a blended approach will work well for all times.

Arun Kumar, VP and head, Research, FundsIndia, says despite the recent run-up, investors can continue their SIPs provided they have at least a seven-year time frame. “However, if you are planning to deploy large sums of money as lumpsum, the valuations are on the higher side and you might want to stagger the same via a 6-12 month weekly STP,” he says.

Nirav Karkera, head, Research, Fisdom, says amid a run-up in small-cap indices certain pockets might be expensive. However, there are still enough opportunities in the underinvested and under-researched segments. “While the recent run-up in stocks has been notable, investors should deploy money in small-cap funds in a staggered manner. STPs and SIPs are the preferred ways to invest in them,” he says.

Highly volatile

Small-cap segment tends to have higher volatility. For example, during the