What are the different types of Small cap funds in India?
In India, small-cap funds are a type of mutual fund that invests in stocks of small-sized companies. These companies have a market capitalization of up to Rs. 500 crores. Small-cap funds are considered to be riskier than mid-cap and large-cap funds but have the potential to generate higher returns. Here are some of the different types of small-cap funds in India:
Actively Managed Small-Cap Funds: These funds are managed by professional fund managers who actively buy and sell stocks in order to generate higher returns for investors. The fund manager uses their expertise to select stocks that are likely to perform well in the market.
Index-Based Small-Cap Funds: These funds track a specific small-cap index, such as the Nifty Smallcap 250. The fund manager aims to replicate the performance of the index by investing in the same stocks that are included in the index.
Value-Oriented Small-Cap Funds: These funds invest in small-cap companies that are undervalued in the market. The fund manager identifies companies that have strong fundamentals but are currently trading at a discount to their intrinsic value.
Growth-Oriented Small-Cap Funds: These funds invest in small-cap companies that have strong growth potential. The fund manager identifies companies that have a competitive advantage and are likely to grow at a faster rate than their peers.
Sector-Specific Small-Cap Funds: These funds invest in small-cap companies that belong to a specific sector, such as healthcare, technology, or consumer goods. The fund manager identifies companies that have strong growth potential within their respective sectors.
Open-ended small-cap funds: These are mutual funds that allow investors to enter or exit the fund at any time. Open-ended small-cap funds are popular among investors as they offer liquidity and flexibility.
Close-ended small-cap funds: These are mutual funds that have a fixed maturity date, typically ranging from 3 to 7 years. Close-ended small-cap funds are less popular among investors as they offer less liquidity and flexibility.
Equity-linked savings scheme (ELSS) small-cap funds: These are small-cap funds that offer tax benefits to investors under Section 80C of the Income Tax Act. ELSS small-cap funds have a lock-in period of 3 years, and investors can claim a tax deduction of up to Rs. 1.5 lakhs on their investments.
Small-cap index funds: These are mutual funds that invest in stocks of companies included in a small-cap index, such as the Nifty Smallcap 50 or BSE SmallCap index. Small-cap index funds are ideal for investors who want to invest in a diversified portfolio of small-cap stocks.
It's important to note that each fund has its own investment objective and risk profile, and it's essential to conduct thorough research before investing in any mutual fund. Investing in small-cap funds can be riskier compared to other funds due to their volatile nature and the lack of liquidity in the small-cap segment. Therefore, investors should consult a financial advisor before investing in small-cap funds.
