Small-cap funds make comeback, but they are a volatile investment option

Only investors with appetite to handle their high volatility should enter them

After disappointing investors in 2018 and 2019, small-cap funds have made a strong comeback. They appear set to outperform both large- and mid-cap funds this calendar year.

What is driving the bounce-back? 

The category is catching up after a long spell of price and time correction since January 2018. 

Also, the economy is improving and liquidity flows into the market have been strong.  “The small-cap segment tends to do well in such an environment," says Ashwin Patni, head-products and alternatives, Axis Asset Management Company. 

Fund managers say the quality of management at many small-cap firms has improved after demonetisation and the introduction of GST. 

“Many