vividkreationsSmall cap mutual funds invest in stocks of smaller, younger companies with higher growth potential but also more risk and volatility. The benefits of small cap funds include greater growth opportunities, increased portfolio diversification, and professional management.
However, the risks are higher volatility, lower liquidity in trading these stocks, and greater business risks for smaller firms.
Small cap funds can be a good option for boosting returns, but require a higher risk tolerance. Younger investors with long timelines may want to allocate 10-20% to small caps. Those nearing retirement may prefer a smaller 5-10% allocation.
For hands-on investors, buying individual small cap stocks is an option using online trading platforms, but requires more research.
Overall, small cap funds can play a role in powering growth, but the allocation depends on your risk profile and investment horizon. Moderate exposure can provide upside while limiting overall portfolio risk.
