Know the dangers of investing in small-cap funds

Small-cap funds have dominated the past one year with a remarkable 24.57 per cent return. They have outperformed mid-cap and large-cap funds, which delivered 21.22 per cent and 12.84 per cent, respectively. This remarkable performance has also driven a surge in investor interest towards small-cap funds. In September, small-cap funds attracted Rs 2,678 crore in investments, overshadowing mid-cap funds' Rs 2,234 crore. A similar trend was observed in August. However, large-cap funds witnessed outflows of Rs 110 crore primarily due to their underperformance. However, for those interested in investing in small-cap funds, it is necessary to understand the risks that come with it. More volatile in the short term Historical data from the past 18 years reveals that for a one-year investment in small-cap funds, the worst-case scenario is a 61.2 per cent decline. However, there is