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And then, a second bull ran from 2009 until 2017, when the small cap index grew by over 400%. Then in 2008, the index fell by 72%, which wiped off 80% of the gains made in the preceding 4 years. The small cap index grew by 500% in the 4 years between 20. Let’s look at the performance more closely. Now it might seem that this Index has remained relatively flat over 13 years, but that’s not the case. In 2008, Nifty Small Cap 100 index touched the 6,000 mark. How have Small Cap Funds Performed in the Past? While most of these 5,000 small caps are not investible, to choose 30-40 small caps from such a big universe of companies makes stock picking or active fund management an essential skill. So there are 100 large cap companies, 150 mid cap companies, and 5,000 small cap companies. With over 5,000 listed companies on the Indian stock exchanges, it seems a little unfair how companies have been divided between large, mid, and small companies. This definition of small caps also highlights the large universe of companies that the small cap fund managers have to work on. In that context, it would be better to give a fund’s more recent performance a higher consideration than its 5 or 7-year performance.
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Now, because before 2018, there was no consistent definition of small cap funds, which probably means that comparing two large cap, two mid cap, or two small cap funds might have some irregularities. That exercise brought standard definition, and since then, anything below seven thousand crores, which is the 251st company and lower, is a small cap. Understanding Small Cap Fundsīefore the 2018 SEBI recategorization and reclassification exercise, most fund houses had their definition of small caps. We will also talk about when to enter and exit small cap funds and when is the best time to invest in small cap funds. In this blog, we clear all your doubts about what are small cap funds, how small cap funds have performed, and whether investing in small cap funds is risky. There are also opinions where people say that small cap funds work well only in a bull market and that these funds have poor liquidity. Some investors would argue whether or not small cap funds give high returns.
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Everyone seems to have a point of view on small cap funds- some say that it is risky to invest in small caps, while others say that they are safe to invest in.