Mutual funds: Want to be real boss of wealth? Try this money-making trick | Explainer by SIP, ELSS experts

Money making trick: Small and mid-cap funds typically outperform large-caps during a bull market, but decline more when the sentiment turns bearish.

Money making trick: Small-cap mutual fund has given 14.72 per cent return in five years. The category has offered 16.01 per cent in the 10-year horizon. Photo: Reuters

Small-cap vs Mid-cap vs large-cap: To accumulate wealth through small investments has become easier with mutual funds. People can think of becoming rich even when their daily investment is in double-digit only. However, to attain one's investment goal, one needs to understand the various categories of mutual funds available in the market like debt fund and equity funds. According to the investment experts equity mutual funds are available in small-cap, mid-cap, large-cap, multi-cap and ELSS categories. Debt funds are those which gives better returns than bank fixed deposit and other bank deposits. For a mutual fund investor, it becomes important that for which investment goal these mutual fund categories should be chosen by an investor.

Highlighting the difference in small-cap, mid-cap and large-cap mutual funds from a return point of view Kartik Jhaveri, Manager — Wealth Management at Transcend Consultants said, "Small-cap and mid-cap funds outperform large-cap funds when the market is on rising, however, they crash at a faster rate when the market is on downside or bearish. The choice of the right fund should be in sync with the risk appetite, return expectations and investment horizon of the investor."

Watch Zee Business Live TV here:

TRENDING NOW

He said that Small-cap funds 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 funds.

Elaborating upon the returns that an investor can expect in various categories of the mutual funds Jitendra Solanki, a SEBI registered tax and investment expert said, "In debt mutual funds, an investor can expect around 8 per cent returns in long-term means more than 10 years. But, in a large-cap fund, he or she can expect at least 12 per cent returns in the same period. In mid-cap fund, the return will go up by around 2-3 per cent while in a small-cap fund, the return in the same period would be around 16-17 per cent." So, it's all about the choice of the fund and the risk appetite of the mutual fund investor that decides which fund is better for whom. Only returns should not the criteria for choosing the category of a mutual fund, said Solanki.

TAGS: