Tips for Investing in Small-Cap Mutual Funds

When it comes to investing your hard-earned money, making a selection can be a little overwhelming given the number of options available these days. However, mutual funds have always been among the most preferred choices of investors because of the lucrative returns they offer. Especially if you’re looking to grow your wealth with good portfolio diversification opportunities, this is a good option you consider. But at the same time, it is important that you make mutual funds investments according to your financial goals and risk appetite.

Table of Content

• What are small-cap mutual funds?
• How to Make the Right Selection
• Conclusion

There are mainly three types of mutual funds, depending on their market capitalisation opportunities: large, mid, and small-cap. Each type of mutual fund comes with its own set of advantages. This article gives an overview of small-cap mutual funds and also explains a few tips for picking the right one.

What are small-cap mutual funds?

A small-cap mutual fund, as the name suggests, is a type of equity fund where your money is primarily invested in the stock of small-cap companies. A small-cap company is one that has a market capitalisation of less than Rs 5,000 crore.

Such companies are in their initial phase, and they expand at a faster and more aggressive pace. So, these mutual funds are more likely to yield better returns compared to large- and mid-cap mutual funds. Ideally, small-cap mutual funds are considered the most viable option for investors who want better returns and have a higher risk appetite.

How to Make the Right Selection

Currently, there are plenty of options available in the market for small-cap mutual funds. As a result, choosing a fund that can enhance your investment portfolio can be a little difficult. For your convenience, here are a few simple tips that can help you understand which small-cap mutual fund is best for you:

Always start with defining your goals

Every individual has different income, financial liabilities, and goals. So, one needs to take all these things into consideration while choosing a small-cap mutual fund. Before you start exploring options, it is important to determine your financial objectives. This will help you make a decision that aligns with your investment strategy and build a more secure financial future.

For example, if you’re making this investment for things that will happen later in life, such as higher education, retirement, etc., you should invest in a long-term scheme. You can explore various options and choose any of the best small-cap mutual funds suitable for the long term.

Make a decision according to your risk appetite

The next thing you need to focus on is your risk appetite. Known for offering higher returns, small-cap mutual funds often come with higher risk elements as well. Before you make a choice, you must know how much risk you’re willing to take. This way, you’ll be able to make a more informed decision.

Pay attention to details like expense ratio

The expense ratio can be defined as the fees charged by the Asset Management Company (AMC) for managing your investment. Although small-cap mutual fund investments have a higher ROI rate, the profit you’ll make can be significantly impacted by the expense ratio. So, it is always recommended to compare several schemes and opt for the one that has a lower expense ratio.

Check Previous Returns

Although past returns do not guarantee how well a particular mutual fund scheme will do in the future, it does help you make more accurate predictions. While exploring options for small-cap mutual funds, it is important that you do detailed research on the funds past performance. This can help you understand how that scheme works in different market conditions so that you can make a better, informed choice.

Always go for a trusted mutual fund platform

Another important thing that you need to take into consideration is the market reputation of the AMC (Asset Management Company) you choose. The fund managers who handle your investment are responsible for the returns you get. When you opt for a renowned and trusted AMC, you can rest assured about the expertise of their fund managers. This automatically increases your chances of making decent profit margins.

Conclusion

Are you also planning to invest in a small-cap mutual fund but unsure how to get started? Well, this is where your search ends. Muthoot Finance is a leading mutual funds platform offering some of the best small-cap funds in India. Here, we have a team of professional fund managers with years of experience who will help you make the right decision. Or, you can also visit your nearest Muthoot Finance branch for more details.