What you should know before investing:

• An investor should have an investment horizon of at least 5 years in order to get optimal returns from a small-cap fund. This is because equity markets are quite volatile in the short term and, therefore, an investor with long investment horizon should consider investing in such a fund.
• Small-cap funds come under the high-risk category as these funds invest a major portion of their assets in equity and equity-related instruments. Investors with higher risk appetite can consider investing in these funds as these are very much volatile in nature. Any change in the market conditions affects small-cap companies the most and, therefore, the small-cap funds also get affected.
• These funds offer diversification to the investors by investing in small-cap companies across various sectors that are under-researched but have great potential for the future. Therefore, small-cap funds have the capability to deliver much higher returns than mid-cap and large-cap funds.