Investing Rs 10 lakh in small-cap mutual funds can offer higher growth potential over the long term, but it also exposes investors to sharper price movements. Small-cap stocks tend to react strongly to changes in economic conditions, earnings, interest rates and investor sentiment.
For an investor with Rs 10 lakh in small-cap funds, a market correction can therefore lead to a substantial fall in portfolio value.
-
Indian Markets Turning Corner After Two Tough Years, Says Sandeep Tandon -
NDTV Profit Ignite 2026: Experts See Opportunity In Equities, Stay Bullish For Long-Term -
Buy Right, Sit Tight Does Not Work for Individual Stocks, Says Dinshaw Irani -
'Worst Is Behind': Quant MF Sees Market Bottom, Flags 'Extreme Euphoria' In Midcaps -
India's Mutual Fund Industry Could Become A $1 Trillion Opportunity, Say Fund Managers -
'Foreign Investors Are Baraatis': Raamdeo Agrawal's Take On LTCG Tax -
Stay Invested Through Market Cycles: Raamdeo Agrawal at NDTV Profit Ignite -
Ramesh Damani Remains Bullish On India For Next 20-30 Years, Sees Bargains Amid Market Weakness -
CAS Came After A Long Consultation Process: SEBI Chairman Tuhin Kanta Pandey AT NDTV PROFIT IGNITE -
Aim To Cut FPI Onboarding Time From Mth To Five Days: SEBI Chairman Tuhin Kanta Pandey AT NDTV PROFI
What Are Small-Cap Mutual Funds?
Small-cap funds are equity mutual funds that primarily invest in small-cap companies. Under SEBI's classification, small-cap companies are ranked 251st onwards by full market capitalisation.
Also Read | Layoffs Are Rising In Tech, But These Skills Are Helping People Unlock Better Pay
These funds must invest at least 65% of their assets in small-cap companies. Since smaller companies generally have lower trading volumes and less established businesses than larger firms, their stocks can be more volatile.
ALSO READ: Rs 25,000 SIP During A Market Fall: How Much More Can You Buy With The Same Money?
Key Risks Of Small-Cap Funds
Market risk: Small-cap stocks can fall during economic slowdowns, market corrections, changes in interest rates or company-specific problems.
Volatility: Prices can move sharply in either direction. A Rs 10 lakh investment can gain quickly during a rally but lose a sizeable amount during a correction.
Liquidity risk: Smaller companies can have lower trading volumes. During a market sell-off, this can make it harder for fund managers to buy or sell stocks at desired prices.
Longer recovery: Small-cap stocks may take longer to recover after a sharp correction. Investors should not assume that every fall will be followed by a quick rebound.
How Can Investors Manage The Risk?
Investors with Rs 10 lakh to deploy may choose to spread their investment over time instead of putting the entire amount into a small-cap fund at once. SIPs allow investors to invest at different market levels, while an STP can gradually move money from a lower-volatility fund into a small-cap fund over 12-24 months.
Neither approach removes market risk or guarantees returns.
Who Should Consider Small-Cap Funds?
Small-cap funds are better suited to investors who can stay invested for at least seven years and tolerate substantial fluctuations in value. They may have a role in a diversified portfolio when the investor already has a stable financial base and does not need the money in the near term.
Investors with short-term goals or low tolerance for losses may find small-cap funds unsuitable.
The biggest risk with a Rs 10 lakh small-cap investment is not a temporary fall in value, but selling in panic during a downturn and turning that fall into a permanent loss.
READ MORE: Rs 10 Lakh Corpus At 30: Can It Become Rs 1 Crore Without Another Investment?
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
