How much should I allocate to Small Cap mutual funds if I need money after 25 years?

Small Cap are meant to represent companies that are having

  • High Growth
  • High Volatility
  • Low Liquidity

Image Reference: ET Money

Owing to this, while investing in Small Cap Stocks or Mutual Funds, one needs to understand the following

  1. During market correction, small caps tend to loose 10–50% of their value
  2. Small Cap performance can be best seen when there is recovery post downturn
  3. Small Cap performance (as compared to Large Cap) are sentiment driven and Quality small cap stocks tend to correct despite have strong growth numbers
  4. 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
  5. Small Caps are able to beat Large Cap performance over a period of 8–12years

Investment Thesis based on the Investor Profile

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

Also, you can read another article that can be helpful

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Happy Investing!!

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