What is Small Cap Funds

Small Cap Funds are a type of equity mutual fund that invests in stocks of companies with small market capitalization. These companies are typically smaller in size and have a market capitalization of less than Rs. 5000 crores.

Small-cap funds are known for their high growth potential as these companies have a higher chance of generating higher returns due to their nimble nature and ability to grow at a faster pace than larger companies.

Small-cap funds can be a high-risk investment as small-cap companies are generally more vulnerable to economic and business cycles and have a higher probability of failure. However, they can also provide higher returns in the long run as these companies have the potential to grow rapidly and become mid-cap or large-cap companies over time.

Small cap funds are suitable for investors with a high-risk appetite and a long-term investment horizon of at least 5 to 7 years. It is important to note that small-cap funds can be volatile in the short term and may not be suitable for conservative investors or those with a short investment horizon.

Investors should carefully evaluate their financial goals, risk appetite, and investment horizon before investing in small-cap funds. It is advisable to consult with a financial advisor to determine if small-cap funds are suitable for your investment needs.