Risk Filter: Shun lump sums in mid- & small-cap funds
investments in plain vanilla equity products — especially those investing in mid- and small-caps. Investors, who still do not want to miss the equity buzz, may consider hybrid mutual fund schemes, like balanced advantage funds, which invest in a mix of stocks and bonds and alter the investments based on the valuations; or opt for long-drawn Systematic Investment Plans (SIPs) in equity plans.
In the past six months, the Nifty 50 has moved up by 15.5%, while the Nifty Microcap 250 has jumped 57%.
The Nifty Smallcap 250 and Nifty Midcap 150 have gained 39% and 35%, respectively. Analysts said the outperformance of smaller shares has led to their valuations turning expensive.
Since mid-cap, small-cap and micro-cap stocks are considered riskier compared to blue-chips, a reversal in the market leads to a sharper drop in them and lump sum investments at peak levels lead to a corresponding erosion in investment values.
«After the sharp run-up, investors should be cautious in the mid- and small-cap space,» said
G Pradeepkumar, CEO, Union Mutual Fund. «This space has chances of high volatility and hence investors must stagger their investments.» He said investors must only put money in mid- and small- cap funds, if they are willing to hold them for at least five years.
Some in the market are recommending investors to take some money off the table from mid- and small-cap stocks or products and move to less-volatile ones.
«At this juncture, we believe it will be prudent for investors to take some risk off the table and shift from higher beta stocks to large caps and defensives,» said Pranav Haridasan, MD and CEO, Axis Securities.
In August, mid-cap and small-cap mutual funds received most of the retail investor flows among equity
