Over the last one year, many investors have been using systematic investment plans (SIP) to invest in equity mutual funds. Due to a sharp run-up in the markets, SIPs in small and mid-cap funds have been one of the best performers giving returns as high as 50%.
But financial advisors caution against investing aggressively in these fund categories on the basis of recent returns as valuations are stretched. The NSE Small Cap 250 index now trades at a price to earnings (PE) ratio of 102.84 as against 83.34, a year ago.“Do not look at mid-and small-caps from a one-year period, as they could be volatile in the short term,“ says Amol Joshi, founder, Plan Rupee Investment Services.
Some believe this category is only for investors who have seen a number of equity cycles and understand the risks in such investments. “Though the returns are tempting, the risk in smalland mid-cap funds is far higher. Only investors who understand this, should look at such funds with a time frame of 3-5 years,“ says Gajendra Kothari, founder, Etica Wealth Management.
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