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Securities Exchange Board of India categorises companies in terms of market capitalization. The ones that are not in top 250 are termed as small-cap and the ones ranked from 101 to 250 are termed as mid-cap.
If you are someone who has an appetite for risk and are looking for higher returns, then you may add small-cap funds to your portfolio.
Below are the pros and cons of small-cap Mutual Funds:
Good Returns: The star stocks of the future are often to be found among the small-cap. Small-cap are typically those whose potential has not yet been fully discounted by the market. A good small-cap Mutual Funds focuses on discovering stocks that offer hidden value.
Diversification: The small-cap universe is a large one and offers a huge diversity of choice for picking stocks across sectors and industries. Mutual Funds managers can identify and pick niche companies that could be potential multi-baggers.
Risk: Small-cap are highly volatile and swing much more than mid-cap and large caps when markets are unpredictable. Many of them are illiquid and as a result may not offer good exits in falling markets. Therefore small-cap Mutual Funds may be suited only for investors with good risk appetite.
Fund-Dependent: Picking good small-cap requires a lot of research and analysis. Not all Mutual Funds managers may be able to do this successfully. So the success of a small-cap fund rests heavily on the capabilities of its fund manager and his/her team.
Now that you know the advantages of investing in mid-cap you may decide if you want to invest in it or not. If you plan to start investing in Mutual Funds I would recommend HDFC securities. Here is the link for the same: https://www.hdfcsec.com/digify/login?id=lgn