Investing in companies that have smaller market capitalisation, many Small Cap funds have given higher returns of over 15% in 10 years. Of these, two small-cap funds – SBI Small Cap Fund and Nippon India Small Cap Fund – have increased investors’ wealth with an annualised return of over 25% in 10 years, according to data on the Association of Mutual Funds in India (AMFI) website at the time of writing.
While everyone wants to grow their wealth and wait for the so-called right time to invest, high returns from these equity schemes over the years show that even small monthly investments through SIP could have substantially increased one’s wealth substantially in 10 years.
As per the SIP calculator, if you could have saved just Rs 100 per day and invested Rs 3000/month (100×30) in these two small-cap funds, your wealth at 25% returns could have increased to over Rs 15 lakh by now.
If you had saved Rs 200 per day and invested Rs 6,000/month (200×30) in these funds, then your wealth at 25% returns could have grown to over Rs 31 lakh.
Similarly, saving Rs 500 per and making a monthly investment of Rs 15,000 (500×30) would have increased your wealth to over Rs 79 lakh in 10 years with these funds. Having said that, this is not to suggest that you should start investing in these funds. But this calculation is just to show that even saving very small amounts every day and investing in mutual funds through monthly SIP could make you rich in the long run.
Should you invest in small-cap funds?
The decision on whether to invest in small-cap funds or how much to invest should be entirely yours, based on your risk appetite and requirements. It is always better to take proper financial advice from an expert financial planner before making any investment in mutual funds and other market-related instruments.
There are 5 points you should know about small-cap funds:
- According to experts, small-cap funds carry higher market risks when compared to other categories. These may be suitable for well-informed investors who are willing to take high risks.
- The higher risks in small-cap funds arise from the fact that they invest in small companies that have a long way to go to deliver consistent growth. Because of this, small-cap funds often have periods of massive gains and falls.
- Wealth managers suggest that one should have a small portion of their portfolio allocated to small caps.
- Small-cap funds generally do well when the markets are doing well but may see sharp declines during the bear phase.
- You should never invest in small-cap funds with a view of timing the market. It is always better to do proper research and take financial advice before making the investment.
(Disclaimer: Mutual fund investments are subject to market risks. Please consult your financial advisor before making an investment decision)