Money making tip: Which mutual fund is better-suited to achieve long-term investment goal?
Small-cap mutual funds and mid-cap mutual funds typically outperform large-cap mutual funds during a bull market.
Mutual Funds Investment: Small-cap stocks typically have the highest growth potential, since the underlying companies are young, and seek to expand aggressively. They are more vulnerable to a business or economic downturn, making them more volatile than large and mid-caps. Investors who are keen to invest in the small-cap space and may not have the time to research but possess the high risk-taking capacity can look to invest in small-cap mutual funds.
Speaking on the various mutual funds category from return perspective Balwant Jain, a Mumbai-based tax and investment expert said, "Small-cap and mid-cap mutual funds typically outperform large-cap mutual funds during a bull market, but decline more when the sentiment turns bearish. The choice of the right fund should be in line with the risk appetite, return expectations and investment horizon of the investor."
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Whether it's good to link all long-term investment goals with small-cap mutual funds Balwant Jain said, "Not necessarily. The choice of a particular product has to be based on various factors and not necessarily your time horizon for investing the money. So in case, your risk appetite is low, the small-cap category is not for you. Likewise, your ability to take risk also is important for determining the product in which you should invest. At the start of your career, your ability to take risk is far higher than once you have crossed your 50 years of age. Please note that the risk appetite an ability t take are two different things. They are indeed volatile and risky in the short term, but they have the potential to offer superior returns over a long period. Small-cap mutual fund schemes are meant for aggressive equity investors who can stomach a lot of volatility and risk."
Advising investors to select mutual funds on the basis of one's risk appetite Jitendra Solanki, a SEBI registered tax and investment expert said, "while choosing an investment product, you have to consider various factors and not alone the risk appetite. What is the use of risk appetite when your ability to take risk has almost come down to nil. So, one should invest in small-cap funds when one has risk appetite coupled with risk-taking ability as well a time horizon of at least ten years to accumulate the corpus for the required goal."
Solanki advised investors to diversify one's portfolio by opting around 50 per cent in small-cap, around 30 per cent in mid-cap and rest in large-cap mutual funds.
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