Mutual funds: Why investors are choosing small caps over large and mid-cap funds — explained
The small-cap Mutual Fund category has given impressive returns. Irrespective of the time horizon of an investor, small-cap mutual funds have grown investors' wealth many-folds. Market experts say that in the long term, this MF category is capable of giving the maximum return on one's money. This is because it moves faster than large-cap, and mid-cap mutual fund plans.
Hemant Sood, Founder of Findoc said that due to the potential for large gains, small-cap funds have become favourites among mutual fund (MF) investors.
“These funds make investments in lesser-known, smaller businesses with promising growth prospects. As these businesses increase their position in the market, this offers investors the possibility to profit from quick gain," said Hemant Sood.
Small-cap funds also provide benefits for diversification. Their inclusion in a portfolio of investments can increase overall diversification and lessen the effects of subpar performance from larger companies. Additionally, this diversification makes use of many market niches, thus insulating the portfolio from market swings, added Sood.
The Association of Mutual Funds in India (Amfi) data for the month of July showed that small-cap space has got the highest inflow this month also followed by mid-cap funds. Since the last few months small-cap and mid-cap have consistently outperformed the large-cap space by a wide margin,
“We have to understand that the small-cap space currently is not companies that are very small. The 251st company which is the starting point of small cap space is of around 22k cr market cap and the 500th company is of around 8500 cr market cap. So these are reasonable size companies with reasonable scale of business and market presence and at the
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