While searching for the best small cap mutual funds 2024, consider if you are-
- Investor Who Wants to Diversify
It is suitable for investors who are already in the investing market and looking for more ways to diversify their investments. Given that small cap funds can be risky in nature, it ensures that your investments are spread across various other forms of investments and not small cap funds alone.
- High-Risk Appetite Investor/Aggressive Investor
These investments are much more riskier than mid or large-cap funds, given that they invest in smaller company stocks that are yet to experience growth. Therefore, it can suit the investors who are willing to take the risk or have the risk appetite to face sudden lows of the fund.
- Long Term Investor
Small cap funds can see sudden fluctuations in the short term, but they are known to perform well over the long term. This enables them to be the most suitable investors who can stay invested in the funds for the long term.
The factors to consider before beginning to invest in top small cap funds are:
Risk Factor: Small cap mutual funds are highly volatile in nature when compared to mid or large cap mutual funds. Moreover, the net asset value of small cap mutual funds fluctuates on a broad range.
Investor Expertise: Small cap mutual funds can deliver high performance on a combination of good strategy and observation. But, these funds are known to be highly volatile. Therefore, it is advisable to investors with good mutual fund investment expertise.
Investment Term: These types of mutual funds are most suitable for investors with a long investment time horizon. It is mostly not suitable for investors with a short investment tenure.
Here are some of the benefits of investing in the best small-cap mutual funds:
- High growth potential: These funds possess immense growth potential. It’s because small-cap companies have an aggressive expansion strategy that can boost their growth significantly, especially over the long term.
- Ability to outperform other equity funds: In case the large-cap and mid-cap funds are not delivering returns per expectations, small-cap mutual funds can be a suitable portfolio inclusion. These tend to offer better gains, thus, balancing your portfolio.
- Researched diversification: The best small-cap mutual funds usually invest in stocks of companies with massive potential to generate returns. Fund managers conduct extensive research to analyse the top-performing stocks and invest accordingly. It lets investors diversify their portfolio but with calculated risk.
Investment route: Investors can allocate their savings to small-cap funds via two ways: lump sum and Systematic Investment Plan (SIP). By opting for the first option, individuals can invest the total amount they want to invest in at one go. Nevertheless, please note that one may have to invest a minimum of Rs.1,000 in this case. On the contrary, SIP allows investors to allocate their funds to a mutual fund scheme at fixed intervals (monthly, quarterly, etc.). The instalment amount can be as low as Rs.100 in this regard.
While finding the best small cap funds, have a look at the major risks associated-
High Volatility: One of the biggest risks connected with small cap funds is that their prices might fluctuate dramatically. This makes them extremely unstable to invest in because the losses can be substantial if the price does not move in accordance with your expectations.
Risky Performance: The performance of small cap funds is determined by a number of factors, including stock selection, stock performance, and timely intervention by the fund manager to balance the fund. Since there are so many variables at play, the performance of small cap funds may not be as impressive as one might think.
Low Liquidity: Small cap mutual funds are rarely invested in by institutional investors. Even among retail investors, though, engagement is typically low. This can cause liquidity concerns and make it more difficult to buy or sell units in the market.
FAQ
Q1. Are small cap funds good for new investors?
Small cap funds are known to have sudden highs, and provide rewarding returns. But, they are also known to be extremely volatile in nature, especially when compared to mid cap and large cap funds. Therefore, investors with more expertise can consider investing in these funds.
Q2. What type of returns can be earned from small cap funds?
Small Cap Funds deliver stable returns in the long run because, in the short span of duration, they may encounter market fluctuation, resulting in volatile results.
Q3. Is it risky to invest in small cap funds?
It is risky and volatile to invest in small cap funds in the short term, it is when they could encounter major fluctuations. Apart from that, small cap funds can give you rewarding returns in the long run.
Q4. Are small cap funds suitable for short term investment?
Small cap funds are known to give you high returns in the long term, and perform well over a time period.
Q5. Who are small cap funds most suitable for?
Small cap funds can be the most suitable for investors with expertise in mutual fund investments.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
