Shiv Chanani, Senior Fund Manager – Equity, Baroda BNP Paribas Mutual Fund

1)     What is a small-cap fund?

A small-cap fund is an equity -oriented mutual fund scheme that predominantly invests in the stocks of small-cap companies. Small-cap companies are those with a market capitalization of less than Rs. 17,390 crores (As per AMFI average market cap from Dec 22 to Jun 23).

2)     What are the benefits of investing in small-cap funds?

Small-cap funds has the potential for providing higher returns. This is because small-cap companies are expected to grow faster than large-cap companies and are more likely to generate higher profits.

3)     What are the risks of investing in small-cap funds?

Small-cap funds are also more risky as compared to other types of mutual funds. This is because small-cap companies are more volatile and can be more susceptible to market fluctuations. As a result, small-cap funds are not suitable for all investors.

4)     Who should invest in small-cap funds?

Small-cap funds are suitable for investors who are willing to take on more risk in exchange for the potential for higher returns. Investors who have a long-term investment horizon and are comfortable with the volatility of small-cap companies are more likely to be successful investing in small-cap funds.

5)     How to choose a small-cap fund?

When choosing a small-cap fund, it is important to consider the following factors:

• The fund’s track record: Look for a fund with a long track record of generating positive returns.
• The fund’s management team: Make sure the fund is managed by a team with experience in managing small-cap companies.
• The fund’s investment objective: Make sure the fund’s investment objective aligns with your own investment goals.

6)     Where to invest in small-cap funds?

You can invest in small-cap funds through a variety of channels:

• Mutual fund distributors
• Online platforms
• Directly with mutual fund house

7)     Why is it a good time to invest in small-cap funds?

Small caps have outperformed large caps in recent years. Over the past 10 years, small caps have outperformed large caps by a significant margin. This is because small caps are expected to be more growth-oriented than large caps, and they have benefited from the strong economic growth in India. The Indian economy is expected to grow at a rate of 7-8% in the coming years. This growth may create opportunities for small caps, as they are often involved in the newer and emerging sectors of the economy.