Smallcap companies are those that have a market capitalisation of less than the 250th stock on the stock exchange. With economic data improving, the corporate profitability of smallcap companies can be expected to improve. Investors looking for decent returns and having a higher risk tolerance can look to invest in small caps. When it comes to mutual funds, schemes that invest at least 65% of their portfolio in smallcap stocks can be deemed as smallcap funds.
There are over 4,500 smallcap companies listed on the stock exchange in India. Though they have the potential to give investors good returns, it is advisable to stay invested in them for the long term to mitigate the risks.
Actively managed to smallcap funds can outperform other segments of the market, especially during phases of economic recovery or growth. Historically too, the smallcap funds have managed to outperform other segments.
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