Stagger investments in small-cap funds

Take a long-term view invest only if you can handle high volatility

- SAIKAT NEOGI

WITH SEVERAL FUND houses restricting investments in their small-cap funds and the markets regulator also now expressing concerns over frothy valuations, individuals must exercise caution. They should opt for systematic investment plans (SIPs) and avoid lumpsum investments in this segment, say experts.

Before investing in small-cap funds, investors must note the fund size. If it is too large, then generating alpha would be difficult. Individuals should stay invested for over five years to earn higher returns. And the return expectations need to be around long-term averages and not what the market has delivered over the past one year.

Restrictions on investments

Taking a cue from the markets regulator, Association of Mutual Funds in India has directed fund houses to find ways to protect the interest of small-cap investors in a frothy market.As the small-cap segment is in an overbought zone, fund managers are finding fewer reasonable opportunities to invest in. The assets under management of smallcap schemes rose 89% to 2.48 trillion in January from ₹1.31 trillion in the same period last year.