Play safe in small-caps even though the valuations seem attractive

Given their high volatility, conservative investors must limit exposure to 5-10% of equity portfolio

Two developments have taken place within the small-cap space. One, these funds have, on average, run up 22.8 per cent over the past three months, outperforming their mid- (15.5 per cent) and large-cap (10 per cent) peers. Two, SBI Mutual Fund has announced that its Small Cap Fund will only accept money via the systematic investment plan (SIP) route, and not lump-sum investments. This has led to speculation that the category may have become overheated.

Valuations not exorbitant yet: The market rally since March has been driven by liquidity, which has lifted all boats, including small-caps. “During 2018 and 2019, small-caps