Time To Buy Small-Cap & Mid-Cap Funds

The last few years have been difficult for most of the mutual fund investors.

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Their investments in mutual fund schemes through Systematic Investment Plan (SIP) have generated lesser returns compared to very safe, fixed deposits in banks. Baring IT and International category of funds, every other category have generated returns in single digit. The worst hits were those investors who had invested in small-cap, infrastructure and PSU dedicated funds. These funds on an average have generated negative return in the last 3 years. This return also includes the spectacular performance of year 2017 when some of the funds in mid and small-cap category generated returns northward of 50 per cent.

The story is not different for lump sum investors in the last 3 years. Mid-cap dedicated funds on an average, generated an annualised return of 7.77 per cent while, small-cap generated 4.69 per cent in the same period. Nevertheless, the situation might be changing for good now for these beleaguered categories, especially the mid-cap and small-cap categories. Since the start of the December (till January 6), the broader indices represented by BSE Small-cap and BSE Mid-cap has outperformed the large-cap index represented by BSE 100. The best return is generated by Small-cap index, which is almost up by 5 per cent in the last one month, as compared to flat return by large-cap index.

The million-dollar question is whether this is going to be sustainable or is it going to be another false signal, especially after looking at the current geo-political tension that has a potential to derail the current rally.

We believe the current rally has a longevity. There are strong reasons to believe that this will continue.

Worst of economic growth is behind now