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In: Economics

What is a small cap fund?

What is a small cap fund?

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Expert Solution

Companies that have a comparatively smaller market capitalization (market value of outstanding shares) generally between US$300 million and $2 billion are classified as small cap. The stocks of small companies have the potential for outperforming large cap stocks thereby providing the opportunity to beat institutional investors in terms of performance. These stocks can double or triple in a short span of time of just a few years, but the return from these funds can be subject to high volatility.

Investors who have high risk capacities can opt for these types of funds to boost portfolio returns for long-term wealth accumulation taking into consideration the objective of the investment and investment horizon. Investors who are not averse to taking high or moderate risks, can consider investing in other funds which are more stable like large cap funds for a period of 5 to 10 years.  The performance of smaller or larger funds varies over time based on the broader economic climate. Comparing small cap funds with mid cap funds, mid cap funds generally offer stable returns than the small cap ones.


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