Small-cap funds attract investors despite market downturn: Are they worth the volatility?

Despite a significant drop in the small-cap index over the last few months, investors remain optimistic about the small-cap fund category. Small-cap funds have seen net inflows of over Rs 2,200 crore per month in the past two months. In fact, in January, small-cap funds were the highest receiving category with flows of Rs 2,255 crore among the 11 categories of equity funds. Industry officials suggest that investors are investing more during the market downturn, anticipating higher returns in small-cap funds compared to large-cap funds. Small-cap companies exclude the top 250 companies based on market capitalisation and are more prone to volatility as they invest 65 per cent of total assets in equity and related securities of small-cap firms. Small-cap funds offer long-term return potent