Understanding market capitalisation and small-cap funds
Funds are categorised as large-caps, mid-caps and small-caps on the basis of market capitalisation. Market capitalisation is defined as the market value of all outstanding shares of a particular company. The value here is derived when you multiply outstanding shares of the company with the market price of each share.Market capitalisation = current stock price x number of outstanding shares.The Securities and Exchange Board of India (Sebi) defines all companies from the 251st company in terms of market capitalisation to be small caps. Small-cap funds invest in stocks which are classified as small-caps or those companies who have a market capitalisation of less than Rs 10,000 crore. According to the new Sebi guidelines, small-caps can invest 65 percent of their assets in 250 or below stocks based on market capitalisation.Small caps are very risky; only if you have a high risk appetite should you invest in this scheme. Small caps are very volatile over a short period of time but these funds have a huge potential to perform extremely well over a long period of time.Due to their huge potential of generating returns they are the most preferred investment option. The underlying companies are young and seek to expand aggressively thus making them more vulnerable to a business or economic turndown, making them more volatile to large and midcaps.When it comes to trading, small caps are less liquid compared to its peers, you may face difficulty in buying shares in bulk or selling shares at favourable prices. Small caps are companies with lower market capitalisation which makes them unstable as they take the worst hit during a market downturn.The standard deviation for small-cap funds is more compared to large-cap and mid-cap funds.
|Nifty Small-cap 100
|India Fund Small-cap
3-year ratios as on 31st
Dec, 2018 Post Sebi re-categorisation, each AMC is allowed to only one small-cap fund within the category and hence it is easier for investors to pick a small-cap fund and in all, there is a total of 16 schemes in the small-cap category.Small-cap fund returns for the last 10 years
|Nifty Small cap 100
Data as on 31st