As the economy revives, the full value chain across sectors benefits, including small cap companies. Essentially, small cap companies are those that have a market capitalization of less than the 250th stock on the stock exchange. When it comes to Mutual Funds, funds that invest at least 65% of their portfolio in small cap stocks or companies can be deemed a small cap fund. To give a perspective, there are over 4,500 small cap companies listed on the stock exchange in India. Research suggests that investors looking for decent returns and having a higher risk tolerance can explore small caps as an option.
Is this the right moment to invest in small caps?
The answer is Yes.
The latest major economic indicators like overall output (GDP), factory output, and hiring activity show that the economy has turned the corner, and is set for a revival. As the demand picks up on the back of improved economic conditions, well managed small cap companies see potential upgrades in profitability.
What are the things to remember while investing in small caps funds?
- Small cap funds have good potential for growth and market cap expansion in the future
- Small cap funds also provide diversified sectors for investment
- These funds are a good investment option to fulfill long term financial goals
- Investors should note that small cap funds are known for their volatility
- Small cap funds are suitable for long term investors as they are volatile in nature
(Written by Ajit Menon, CEO, PGIM India Mutual Fund. Views expressed above are author’s own.)
