New investors prefer microcap schemes, say mutual fund advisors

Many mutual fund investors, especially the new entrants, are making a lot of enquiries about microcap schemes these days, say MF advisors. “Recently, my clients have started asking a lot about microcap funds. Earlier, they were interested more in midcap schemes,” says Neeraj Chauhan, CEO, The Financial Mall.

MF Advisors say that the new entrants to mutual funds and the younger investors are obsessed with the eye-popping returns offered by microcap schemes in the last few years. The smallcap category has returned an eye-popping 40.48 per cent returns in the last one year and 36.49 per cent in three years.

“Many investors are looking at the small and microcap funds because of the jaw-dropping returns. But I tell them that returns alone should not be the reason to invest,” Nisreen Mamaji, Chief Planner at MoneyWorks Financial Advisors. “I do not advise my clients to chase returns in microcap funds as they have already ran up a lot.”


Mamaji also says that many young investors are simply chasing returns and investing in microcap schemes. “The young investors, who are tech-savvy and are forever buying something or the other online, are not consulting the advisors. They are trying everything on their own. These investors are mostly chasing the returns in the small and microcap funds,” she adds.

Advisors believe that these investors do not seem perturbed by the high-risk profile of small and microcap schemes. “Most of these investors haven’t seen the market downturns and are taking the risk without considering the impact of a correction or a crash for that matter,” says Neeraj Chauhan.

“I think small and microcap schemes have run up way too much. Expecting great returns from them in the future would not be right,” says Nisreen Mamaji. She adds that opting for a multicap fund, or to be safe, a largecap fund would be the best bet at this point in the market.

Neeraj Chauhan says, investors should remember that every sector in the market goes through phases. “What is doing well right now might not do well in the next quarter. Investors need to choose their schemes very carefully and then stick to them for a long time.”