In this episode, we dive deep into the world of small cap funds, discussing their characteristics and the reasons behind their surging popularity. With net inflows of over 12,000 crores during the first half of this year and an impressive AUM of 1.53 lakh crores, small cap funds have captured the attention of investors.

We start by examining the performance of the Nifty Smallcap 250 TRI, which witnessed a remarkable growth of 11.46% during the first half and a staggering 20% in the first quarter of the current fiscal year (FY 23/24). These impressive numbers have fueled the enthusiasm around small cap funds.

However, we also explore the concerns surrounding these funds. Some funds are currently restricting investments due to several reasons. One of them is the limited opportunities available in relation to the valuation of small cap stocks. Stocks with mutual fund exposure have an average PE ratio of 58, compared to 25 for stocks without such exposure. This valuation gap raises caution among fund managers.

Another factor to consider is lower liquidity in the small-cap market. The influx of substantial amounts of money can potentially drive up prices and create unattractive valuations. This situation can become a self-perpetuating cycle that may pose challenges for investors when market cycles turn.

We provide insights into the market cap dynamics, highlighting that small-cap stocks typically represent around 10-15% of the overall market cap. In 2017, this threshold was breached, but in 2020, it fell below the 10% mark. These shifts illustrate the changing landscape of small-cap investing.

To wrap up the episode, we offer guidance on how to position your portfolio in light of small cap funds. It is advisable to limit your small-cap exposure to approximately 10-15% of your overall portfolio, considering your risk appetite and investment time horizon.

Join us in this informative discussion as we explore the world of small cap funds and provide valuable insights to help you make informed investment decisions. Don't miss out on this insightful episode!

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