Mutual funds are known to offer capital appreciation over a long period of time and have consistently outperformed conservative schemes in terms of delivering returns to their investors. While conservative schemes like bank FDs are offering 4 to 7 per cent returns, equity mutual funds have offered 15 to 19 per cent returns. The difference between these two is that mutual funds do not offer fixed returns whereas bank FDs do. Markets regulator SEBI has defined mutual funds as “a mechanism for pooling resources by issuing units to investors and investing funds in securities as per the objectives stated in the offer document. Investment in securities is a broad spectrum of industries and sectors.” The cross-section is spread out and thus the risk is reduced.”

SEBI has classified mutual funds on the basis of their unique characteristics such as which asset they choose for their portfolio, how much risk they take to earn returns, what is their investment objective etc. Some of the most sought-after mutual fund investments refer to equity, debt, hybrid, ELSS, gold, ETFs, etc. An equity mutual fund is an open-ended scheme that primarily invests in equities for income generation. Equity mutual funds are further sub-categorized as large, mid, small and multi cap, based on the market capitalization they choose to stock.

• Invests in a large cap fund blue chip shares
• A mid cap fund invests in stocks of companies with medium market capitalization
• A small cap fund invests in companies that are ranked from 250th and below in terms of market capitalization
• A multi cap scheme invests in stocks of companies with small, mid and large market caps

What are Small Cap Funds?
As stated earlier, Small Cap Mutual Fund is an equity scheme that invests in shares of companies with small market capitalization. These funds are considered riskier as they provide very little liquidity and are more volatile than both large and mid cap funds. As per SEBI guidelines, a small cap fund should invest at least 65 per cent of its total assets in mid cap stocks to achieve its investment objective.

Should you invest in Smallcap schemes?

since
small cap funds To trade a high risk return, investors with high risk appetite can consider investing in these market linked schemes. One must realize that investing in small cap funds in the short term may not give them a better capital appreciation, so to allow your portfolio to grow, you should consider a longer investment horizon while investing in small cap funds. should be maintained. Understand that small cap funds do not guarantee capital gains. Therefore, investors should not rely on only one asset class or market cap to achieve their life financial goals. Plus, there is a chance of losing your money, which is why most financial advisors recommend investing only what you can afford to lose.

To neutralize investment risk, you can consider starting monthly
sip In small cap funds. A systematic investment plan will ensure that you continue to invest a fixed amount every month in the small cap fund of your choice. If you are skeptical about the fund’s performance, you can stop your SIP investments and switch to a better performing scheme. Some AMCs also have the option of starting a monthly SIP of less than Rs. 500 per month.

To conclude, small cap funds can offer capital appreciation over the long term, but since these are a high-risk investment, investors are expected to consult a financial advisor before investing.