small cap mutual funds in india are equity funds that primarily invest in companies ranked 251st and beyond in terms of market capitalization. These companies are usually in the early stages of growth, offering a higher potential for returns compared to large-cap or mid-cap firms.
Despite being risky in the short term, small cap funds are known for:
High growth potential
Low base for expansion
Participation in niche and emerging sectors
Attractive valuations
What Is SIP and Why Is It Ideal for Small Cap Funds?
A Systematic Investment Plan (SIP) allows investors to put in a fixed amount of money at regular intervals (usually monthly) into mutual funds. This strategy helps in rupee cost averaging, disciplined investing, and avoiding the stress of market timing.
Why SIP Works Best with Small Cap Mutual Funds:
Mitigates Volatility: Small caps can be extremely volatile. SIPs help average out the cost during market fluctuations.
Builds Long-Term Habit: SIPs encourage consistent investing without needing to monitor the market daily.
Reduces Risk of Lumpsum Entry: Entering the market with a big amount in a volatile asset can be risky. SIP reduces this risk.
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