Mutual funds: The markets are rosy, and small-cap funds are doing very well. The flow has been absolutely massive in the small-cap category in the last few months. Experts say that investors need to be cautious in their investment strategy and just not be carried away.
Mohit Gang, CEO – MoneyFront, a subsidiary of Niyogin Fintech Limited said that there are challenges, and problems associated with small-caps. Diversification in your portfolio is a must.
Investors should follow the basic rule of asset allocation
“Investors should not forget the basic rule of asset allocation which is a 60% equity, and 40% debt strategy. In 60, the small-cap allocation was supposed to be 15% one-fourth,” said Mohit Gang.
For those investors whose asset allocation to the small caps category has moved to 20%, he suggested that it’s time to trim and move back to 15%. If under allocation i.e., 10 or 12 %, investors should increase their investments in small-cap funds.
One should not overdo their allocation in the small-cap category, said Mohit Gang.
Several of the AMC companies are not accepting funds in lumpsum for the small-cap segment. Experts suggest the best is to invest is via the Systematic Investment Plan or SIP route to get the desired results.
“Instead of focusing solely on one top-performing scheme, investors should allocate their investments among 2-3 schemes and diversify their exposure across a number of different funds,” said Mukesh Kochar, National Head – Wealth Management, AUM Capital.
Cautious investment strategies, such as SIPs, top-ups, and diversification, are important for investors aiming to capitalize on the potential of small-cap funds, added Kochar
Small-cap funds to buy
While investing in small-cap funds investors should remain cautious as small-cap funds are high in volatility.
Tax and investment expert Balwant Jain said investing in a small cap inherently has a risk of selection due to the very large universe.
“In my opinion, one should invest in small cap through investing in an index fund. Nippon 250 small-cap fund represents the top 250 small-cap companies. Index funds have a lower expense ratio so one can invest here. One has to have a long-term view while investing in a small cap. One should go for small-cap funds only if he has a minimum of 10 years of investment horizon,” said Jain.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Updated: 24 Aug 2023, 01:41 PM IST
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