Why Should You Invest In Micro-Cap Fund

A Micro Cap fund is a diversified mutual fund whose primary objective is to seek capital appreciation from a portfolio that comprises equity instruments. Generally, the market capitalization of these schemes is not as significant as the regular equity schemes. They do not target the top companies in the market, thus the market risk is quite high as compared to the other equity schemes available in the market.

For instance, the DSP BlackRock Micro Cap Fund is an open-ended equity growth scheme whose portfolio is targeted towards companies that are not among the tier companies, excluding large-cap and mid-cap companies. The companies are picked according to the market capitalization. As the companies are not among the top-tier companies, the price of individual stocks is relatively low, thus allowing the fund manager to pick large quantity of stocks as well as diversify the selection.

With this selection, the chances of availing better returns increase significantly. However, the underlying risk also increases, thus several investors fear this kind of investment. However, with expert fund managers on-board, the investment risk is properly mitigated, thus promising lucrative returns to investors.

A Micro-Cap Fund is suitable for a niche category of customers who are:

  • Looking out for long-term capital growth
  • Comfortable with investing in equity options and equity securities of micro-cap companies.(Eg: DSP BlackRock Micro Cap fund targets companies that are beyond the top 300 companies by market capitalization)
  • Able to invest in high risk investment options

The benefits of investing in a Micro-Cap fund include:

  • Better efficiency of market portfolio due to diversification
  • Access to a large pool of a variety of stocks which are uncorrelated
  • Niche play reduces correlation of stocks and provides access to broader markets
  • Chances to earn better returns from under-owned and under-researched stocks

As these micro-cap companies are numerous, the portfolio comprises industrial products, textile products, pharmacy companies, finance, chemicals, banks, auto ancillaries, consumers durable, and retail goods.