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AMFI data shows that small caps funds have been receiving highest inflows across all categories over the last five months. The category has received net inflows of Rs.19,400 crore in April - August 2023 compared to Rs.8100 crore in April – August 2022, a growth of 140%.
We spoke to a few distributors to understand if MFDs should continue to recommend small cap funds to their clients. Here is what they said:
Viral Bhatt of Money Mantra, Mumbai believes that small cap funds gives exposure to new age and innovating companies. He said, “Small cap universe has over 7,000 companies, which gives exposure to a lot of new themes. Also, small cap funds have a potential to deliver more alpha compared to large cap funds which are struggling to beat their benchmark. Also, considering the prospect of economic growth in India, small cap funds are well poised to ride this rally. However, MFDs should recommend clients to invest through SIPs with at least a five year view.”
Mumbai RIA Suresh Sadagopan of Ladder7 Wealth Advisories believes that small cap funds give exposure to emerging sectors, which is not possible in large cap funds. He said, “Many upcoming sectors like healthcare, defense and construction can be found in small cap funds. In large cap, investors invest in a couple of sectors that too in finance and IT.”
However, a few distributors have a different opinion. Mumbai MFD Anup Bhaiya of Money Honey Financial Services feels that small cap stocks have become overvalued. “Small cap indices were underperforming till the last month. We recommended it then but now valuations seem to be pricy and we are not comfortable with it.”
Pune’s Amit Bivalkar of Sapient Wealth and Mumbai’s Ritesh Sheth of Tejas Consultancy said that they are also not recommending small cap funds to their clients owing to high valuation.
