One of the most popular instruments to beat inflation is investments in mutual funds. According to tax and investment experts, an individual can choose from various segments of mutual funds. And the decision for this will depend on parameters like time horizon, investment goal, resource position, and risk appetite.
Many investors have chosen small and mid-cap funds in recent years. In 2018 and 2019, a few small-cap stocks saw a period of sustained increase. From 2020, the market also saw an upward trend in the stocks of small-cap companies. In the years to come, government policies and infrastructure will ensure wide economic growth, thereby assisting small-cap companies in generating good profit growth.
A mid-cap fund invests majorly in mid-cap companies. These companies have a small market capitalization with a good potential of generating reasonable capital returns. Moreover, these firms are emerging. Therefore, they are cautious about their company and development opportunities, making an investment in them slightly risky. Many investors desiring to build wealth over a long period with steady returns invest in mid-cap funds. And these stocks undoubtedly performed well in 2021 as the economy rose again after the global pandemic.
Tips for investing in small and mid-cap funds
After investing in small and mid-cap funds in 2021, investors are now wondering if they should continue making investments in 2022. While both the categorized funds have huge returns, they also carry risks. Let us look at the top 5 tips to continue investing in small and mid-cap funds in 2022:
- Starting a SIP in small-cap funds is right for you if you have an aggressive profile and a long-term investment horizon. You should have surplus money to invest in funds for ten years or so. On the contrary, if your investment horizon is for a period of 4 to 6 years, you have a high chance of earning returns in mid-cap funds.
- If you have a high tolerance for risk, it is a good idea to invest in small-cap funds. That said, your portfolio must always have a little exposure to small-cap funds. The portfolio expansion potential of mid-cap funds is great. If your risk appetite is reasonable for a longer time frame, these mutual funds are your best bet.
- Mid-cap companies have risen in recent times. Thus, they have a large recovery.
- In longer time frames, market research indicates that the profits from mid-cap funds are higher. It is true for sectors like pharma, chemicals, agrochemicals, and technology.
- You cannot predict the performance of a fund. A fund is a right choice for you if your criteria match its features. To benefit from investments in small-cap funds, you must have a prolonged approach to investing.
Small-cap funds have the potential to generate huge returns. A mid-cap company has the potential to grow into a large-cap company in the long term. So, these funds can generate immensely high returns. The overall trend for small and mid-cap funds is positive. The Tata Capital Moneyfy App offers valuable information to investors, helping them gain confidence in their investments.