People investing in small cap funds, don’t need separate exposure in microcaps: Arnav Pandya

economictimes.indiatimes.com:

Arnav Pandya, Founder, Moneyeduschool, says “if you just have a very small portfolio which is dedicated to micro caps, chances are that it could be a long period of time before say one or two or even any of them perform well. So that requires that if you have a slightly broader exposure, as you can see with this kind of passive fund, you are getting a bigger exposure in the market. This in some sense also reduces the risk for the investor.”
Clearly the kind of returns that we are witnessing in the microcap space, at least what we have seen in Nifty microcap 250 TRI, which has been up 44% compared to Nifty 100 TRI. Is this a specific market kind of run that we are witnessing? Also, talking about microcaps, what kind of industries and space are we talking about?
The first thing that you need to understand is that there is no clear definition of microcap per se. Hence, it is open to interpretation but usually as most people understand it, any company after the top 500 companies are considered in the microcap space.

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The second thing is that as an investor, the fact that this space is giving good returns, is not a reason for you to have exposure to it. Your need to have an exposure to this space plus your risk-taking ability is what determines whether you should first have an exposure to microcap or not and then comes the next question as to how much of an exposure you need to have in the portfolio. These are the basic things.
But as far as the overall market is concerned, it is