Small Cap are meant to represent companies that are having
- High Growth
- High Volatility
- Low Liquidity
Owing to this, while investing in Small Cap Stocks or Mutual Funds, one needs to understand the following
- During market correction, small caps tend to loose 10–50% of their value
- Small Cap performance can be best seen when there is recovery post downturn
- Small Cap performance (as compared to Large Cap) are sentiment driven and Quality small cap stocks tend to correct despite have strong growth numbers
- Small Caps are best to have in a portfolio with exposure ranging from 10–30% depending on the age, risk appetite and ability to assess an instrument prior to investing
- Small Caps are able to beat Large Cap performance over a period of 8–12years
Considering all these points,
Any individual looking to invest in Small Stocks or Mutual Funds can allocate upto 30% of their portfolio and assess the performance every 18–24 months.
Hope this helps
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