Small-cap exchange-traded funds (ETFs) are meant to invest in a portfolio of stocks with a market capitalization of less than $1 billion. A small-cap firm is defined as one with a market capitalization of $300 million to $2 billion. However, as some of the holdings of the ETFs listed below demonstrate, small-cap ETFs are not always limited to that range.
Small-cap stocks have great, albeit often erratic, growth potential due to their size. A small-cap ETF can help investors diversify their portfolio while reducing the volatility of individual small-cap equities.
Are small-cap ETFs a good investment?
- Small-cap equities have a stronger growth potential than large-cap firms, and small-cap value index funds outperform the S&P 500 over time.
- Small-cap stocks are also more volatile than large-cap stocks, and individual small businesses are more likely to go bankrupt.
- Small-cap stocks are best suited to investors who are willing to take on greater risk in exchange for a bigger potential return.
What is the difference between a small-cap and a large-cap stock?
The terms “large-cap” and “small-cap” refer to a company’s market capitalization, which is the total dollar market value of its outstanding and restricted stock. Small-cap stocks are issued by smaller public corporations, and large-cap stocks are issued by very large businesses.
While both types of stocks reflect a portion of ownership in a company, the size of the corporations that issue them can have a significant impact on how they perform in your portfolio.
Is there a small-cap ETF available?
India Small Cap ETFs are designed to give investors with exposure to equities in India’s emerging market. These ETFs, which are small-cap focused, limit their holdings to equities with market capitalizations of less than $2 billion but greater than $300 million. ETFs give investors access to a wide range of industries.
More information about India Small Cap ETFs can be found by clicking on the tabs below, which include historical performance, dividends, holdings, expense ratios, technical indicators, analyst reports, and more. Select an option by clicking on it.
Is it wise to invest in small-cap stocks?
Small-cap stocks have a higher potential for outsized gains than larger companies, which is the best reason to invest in them. It’s much easier for a $1 billion firm to become a $10 billion company than it is for a $100 billion company to become a $1 trillion organization. In reality, several of the world’s largest companies, such as Amazon and Netflix, used to trade in the small-cap bracket. If you had bought and held these stocks when they were young, your initial investment would have increased by more than 100 times.
Small-cap stocks have a faster growth rate than large-cap equities. Again, a smaller company can easily quadruple its sales, whereas older organizations’ revenue growth tends to stagnate. Small caps, on the other hand, are more likely to be unprofitable. Because they are more prone to recessions, market crashes, and other shocks, they are more volatile than large caps. Small-cap stocks, for example, plummeted further than large-cap equities during the 2020 crisis, when the coronavirus epidemic hit the United States.
Small-cap stocks are also tracked by fewer investors and Wall Street experts, resulting in larger fluctuations in response to news such as earnings reports.
Do small-cap stocks fare well in an inflationary environment?
Small-cap stocks have soared in recent days as investors put their money on companies that they believe would be able to respond quickly to increasing inflation. According to a CME Group analysis released earlier this year, small-cap equities have outperformed their large-cap rivals during periods of growing inflation forecasts since 2010.
What exactly is a Blue Chip Fund?
Blue chip funds are mutual funds that invest in the equities of significant firms with a high market capitalization. These are well-established businesses with a long track record of success. However, according to SEBI mutual fund classification rules, there is no formal category for Blue Chip funds. The term “blue chip” is frequently used to refer to large-cap funds.
Some mutual fund schemes may have Blue Chip in their names, which is followed by the phrase ’emerging.’ These are large and midcap funds that just contain the term ‘Blue Chip’ in their name. It helps if you don’t choose a scheme solely because it’s called Blue Chip.
Large-cap funds must invest at least 80% of their assets in the top 100 businesses by market capitalization, according to the SEBI mandate. Blue Chip funds, which invest in the top 100 companies, have a similar description.
What percentage of my portfolio should be made up of small-cap stocks?
Break down your stock category even more once you’ve decided on a % for stocks. You can begin by investing 50% of your money in large-cap stocks, 30% in mid-cap stocks, and 20% in small-cap stocks. From there, make adjustments based on your risk tolerance. For example, if you want to increase your growth, you may invest 40% in large-caps, 40% in mid-caps, and 20% in small-caps. Take note of how much risk you took on in the last model. If you combine mid-caps with small-caps, you have 60% of your assets in higher-risk trades. Only 40% of the equities in this scenario are mid-caps.
