Mid and smallcap schemes may continue to offer good returns

Midcap and smallcap schemes have put up an impressive performance once again in 2017. Defying doomsday predictions, these schemes have been offering stupendous returns to investors in the last few years. Will the coming year be different?

Well, if you listen to a section of the market, good times may not last long. However, an ever-increasing number of voices are reiterating that small and midcap schemes may continue to do well in the coming years. They reason that many midcap and smallcap companies may continue to grow up an impressive pace as Indian economy is getting into a new phase after demonetisation and the introduction of Goods and Services Tax or GST.

No wonder, many small and midcap mutual fund managers are bullish on the performance of these schemes. "There have been predictions of corrections for quite some time but I still believe that the steps taken by the government over the last three to four years to strengthen the economy should yield results from a long-term perspective," says Ravi Gopalakrishnan, fund manager of Canara Robecco Emerging Equities Fund.


Even, Samir Racch, fund manager, Reliance Small Cap Fund, says, "I feel for long term investors, smallcap space has still scope to outperform over the long run."

What should be your strategy? Well, we have always recommended a goal-based investment strategy. If you have a very long-term goal and if you have a tolerance for high risk and volatility, you should always invest in midcap and smallcap schemes. The proportion of these schemes to the total mutual fund portfolio depends on the risk tolerance of the investor.

We typically ask investors with an investment horizon of seven to 10 years to invest in these schemes. We believe that it is equally important to give enough time to investments to perform. Since the smallcap and midcap stocks are quoting at a higher valuations in the market, an investor should be cautious and be prepared to wait for a long-term to make stupendous return. It is also equally important not to expect similar kind of returns year after year, as Samir Racch, fund manager, Reliance Small Cap Fund, reminds investors.

"If investors are looking at last one-year or last three-year returns and coming with those kinds of return expectations they are likely to be disappointed," says Samir Racch.