6 tests for a small-cap fund

Yes, they can deliver blockbuster returns. But small-cap equity funds are also the riskiest category of funds you can acquire for your portfolio. So here are six checks to run before you take the plunge. Returns over a cycle It is not bull phases like we saw a couple of years ago that prove the mettle of a small-cap fund. It is the steep corrections like the ones in 2008, 2013 or even 2019. This calls for selecting your small-cap fund based on performance over an entire market cycle, usually seven-eight years. The top fund for one or three years can wilt if a correction hits. Apart from the trailing returns against the category or the benchmark, check out the fund's worst one-year show. A small-cap fund is only as good as its worst year. Seasoned manager Textbook investing, based only o

This article was originally published on July 25, 2019.