If you want to earn more returns by taking risk while investing, then small cap funds can be a profitable deal for you. There are many small cap funds which have given returns of up to 70% in one year. However, experts clearly say that only people who have the ability to take some risk should invest in these.
Small-cap mutual funds are funds that invest in smaller companies. That is, such companies whose share value is very low. We call these small cap companies. However, such companies listed in the stock market are identified only after assessing the potential for better growth in their business.
Small-cap mutual funds invest in all but the top 250 companies of the stock market in terms of market cap. Small-cap mutual funds invest up to 65% of their investment money in small companies. After this, the fund manager invests the remaining 35% amount in shares of mid or large companies.
Do not go for small cap mutual fund schemes for high returns in short time. You are bound to suffer loss in this. Go for these schemes only if you have long term investment plans and have the ability to take risk.
Small cap stocks are riskier because they are less traded. For example, a company may have a unique service/product, but may not have enough finance to fund it. So, sometimes lack of funds makes a business fail. Small cap stocks are more volatile than large cap stocks. According to experts, it is better to invest in it through SIP.