Small Cap Mutual Fund: What is a Small Cap Mutual Fund – Small Cap Mutual Fund
Small cap mutual funds invest a large portion of their investment in equities or instruments related to the equity of small cap companies. According to the Securities and Exchange Board of India (SEBI), small cap schemes are required to invest at least 80 per cent of their total assets in small cap companies. In addition, SEBI defines small capital firms as having a ranking of less than 250 in terms of market capitalization. Financially, these companies are companies with a capital of less than Rs 500 crore. It is important to note that small cap funds carry a lot of risk. Even the slightest volatility in the market has a big impact on the share prices of small cap companies.
However, these cap stocks have the potential to deliver amazing returns. Think about it – a small company has great potential for growth and when it really grows, its share price will rise dramatically. However, many investors turn to small cap plans for short-term investment needs. This can be detrimental as small companies need time to grow. Therefore, if you have a high risk tolerance and a long investment horizon, it is generally recommended to choose a small cap fund.
Investing in small cap equity firms
One thing is clear. You should choose a small cap mutual fund only if you have a high risk tolerance. Generally, investment advisors recommend investors to invest a small portion of their portfolio in small caps. This is because small cap stocks offer a huge opportunity for huge returns. Patience is required to invest in small cap schemes. Small companies may need time before they become the next largest company in the country and they can help you generate a big return on investment.
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