TomorrowMakers

Regarding the types of equity mutual funds (MFs), the most common subdivision is based on market capitalisation. While large-cap MFs invest in blue-chip companies, small-cap funds invest in those stocks which are on the lower spectrum. Such companies are in their growth stage, which has the potential to give higher returns. However, the associated volatility risks are also higher with small-cap MFs. Despite this, small-cap stocks can be a good addition to your portfolio. Find out why.

• The top 5 small-cap funds have delivered more than 30% returns over the past year and more than 20% in the last 5 years, making them a good investment choice 

• As the stock market is poised for growth in 2023, small-cap funds can be a good addition to your portfolio.

• Limit your exposure to small-cap funds as they are highly risky. Invest 10% to 30% of your portfolio in such funds to earn good returns while keeping risks low. 

• Choose from the top small-cap MFs to add to your portfolio and stay invested over the long-term horizon for attractive returns.

Why Invest in Small-Cap Funds?

Here are two of the primary benefits of investing in small-cap funds –

• Growth Potential

Small-cap stocks have a high potential for growth. If the market is bullish and is rising, small-cap stocks usually rise the most, which can deliver good returns on investments. 

• Portfolio Diversification

Adding small-cap funds aids portfolio diversification, as you can diversify your investments across different market caps. It helps enhance the growth potential of your portfolio and also mitigates risks.

Also Read – Know the sectors in which small-cap funds invest

Things to Keep in Mind When Investing in Small-Cap Funds

While small-cap funds can prove beneficial, here are some things to keep in mind –

• These funds are suitable for aggressive investors

• If you have a short-term horizon, you might earn negative returns if the markets turn volatile. So, always invest with a long-term perspective.

• Limit your exposure to limit the risks.

Top 5 Small-Cap Funds

Here is a list of the top 5 small cap funds in 2023 –

(Source: https://groww.in)

*Returns are as of 18^th October 2023

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The Bottom Line

Invest in small-cap funds and unlock the benefits that they offer. Choose from the leading funds for higher returns. 

Also Read – Check out the leading smallcap funds which grew 12X times in a decade

Disclaimer: This article is intended for general information purposes only and should not be construed as insurance or investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.