The small-cap category has managed to outperform all the other benchmarks by providing an average return of 13.42% from January to June of the calendar year 2023. In the first six months, returns offered by the benchmarks were Nifty Smallcap 100-TRI (11.62%), Nifty Smallcap 250 -TRI (11.48%), and S&P BSE 250 Small Cap-TRI (13.06%).
Of the 24 schemes in the small-cap category, all of them reported positive numbers in terms of returns.
During January-May 2023, the small-cap category witnessed a total inflow of Rs 12,397.14 crore. This was the highest among all growth or equity-oriented schemes. Similarly, the asset under management (AUM) for the small-cap category stood at Rs 1.53 lakh crore as on May 31, 2023, as per the data of the Association of Mutual Funds in India (AMFI).
Small-cap funds are known to invest a significant portion of their fund corpus into equity or equity-related instruments of small-cap companies. As per the Securities and Exchange Board of India (SEBI) mandate, small-cap schemes are required to invest over 65% of their total fund corpus in small-cap companies.
Generally, small-cap funds comprise of stocks that are not overly diversified and tend to belong to a focused group that aids in their growth and outperformance.
However, as an investor, it needs to be taken into account that small-cap funds are highly susceptible to any form of market volatility and, therefore, carry high risk. When the stock market experiences a low phase, slow-cap stocks are known to be perhaps the worst affected. It is advised to undertake due diligence while considering the risk appetite and investment horizon prior to opting for investing in a small-cap fund category.
An investor should have a long-term investment horizon (eight-10 years) while investing in small-cap funds in order to generate returns.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.