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    Home»Mutual Funds»How to invest in small-cap mutual funds for high returns
    Mutual Funds

    How to invest in small-cap mutual funds for high returns

    October 11, 2024


    Indian companies, especially in the small-cap space, are set to experience growth in the coming years. According to Mihir Vora, Chief Investment Officer at TRUST Mutual Funds, small-cap stocks have shown a decent earnings growth rate of 24% CAGR since 2021.

    This trend is expected to continue with an 18% growth projected over the next two years.

    In comparison, large-cap stocks are expected to see a much lower growth rate of only 8%.

    “High earning growth has led to a rerating of select small-cap stocks,” Vora said.

    There are approximately 4,800 small-cap companies listed in India, with the largest one with a market cap of nearly ₹35,000 crore.

    Vora emphasised that smaller-sized small-cap funds, which invest in companies with relatively lower market capitalisation, often show higher growth potential.

    Larger small-cap funds, on the other hand, tend to focus on the bigger names within this space.

    When it comes to small-cap investing, Vora advocates for a bottom-up stock selection approach. He pointed out that high-growth sectors like asset management and allied areas—such as depositories, wealth management, broking, mutual fund distribution, and RTA agents—are emerging, offering investors a chance to tap into newly listed companies in these fields.

    However, Vora cautioned that the short-term market can be volatile due to geopolitical, economic, and industry-specific factors.

    “Investing should be undertaken only with a long-term view,” he said.

    According to him, investors need to allow megatrends and the full potential of companies to unfold.

    As for portfolio strategy, Vora recommended a balanced approach: 50% in regular income-generating, debt-oriented instruments to provide stability and predictability, 25% in mid and large caps to capture a significant share of corporate profits, and 25% in small caps to enable participation in India’s growth story.

    First Published: Oct 11, 2024 3:25 PM IST



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