Small-cap funds: High on cash, low on ideas

The hardest thing to believe about small-cap funds, the category of mutual funds that has received the maximum inflows in the last 12 months (it has got a cash injection of a whopping Rs 24,000 crore), the category of mutual funds that has delivered the highest returns over a 10-year period, and the category of mutual funds that is benefiting from the Indian markets scaling all-time peaks this week, is that they have a problem. A problem of scarcity. Let's explain why. The winner's curse As the name suggests, small-cap funds primarily invest in small-cap stocks. But finding a 'winning' small cap can be a slog, like finding a needle in a haystack. Even when a mutual fund does find a "winning' small-cap stock, there is a point up to which it can invest. B