Smallcap fund correction: Trim exposure if it exceeds 20%, avoid full exit
Published by Business Standard
Abhishek Kumar's role: Quoted
Abhishek Kumar pointed out that high-beta funds gain more in rallies but fall harder in downturns. He said long-term investors should hold their smallcap positions, only those with near-term needs should exit, and new entrants need a horizon of at least seven years.
What Abhishek Kumar said
Why do smallcap funds fall more than the market in a correction?
Smallcap funds are high-beta funds, so investors have to weigh their volatility alongside their returns. Such funds tend to climb faster than the broader market when it is rising, but they also drop harder when the market turns down. A correction is simply the other side of the same behaviour that made them look attractive during the rally.
Should I sell my smallcap funds after a sharp fall?
I would not exit entirely. If you invested in smallcap funds for long-term goals, I suggest holding on to your positions through this phase. An exit makes sense only for those who have a financial need coming up in the short term, since that money cannot wait for the segment to recover from the fall.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on mutual funds
Business Standard reviews the sharp decline in smallcap funds and what investors should do. Fund managers and planners discuss valuations, global uncertainty and earnings, the longer-term case for the segment, and suggest that existing investors trim an overweight position while new equity investors start with less volatile categories.
Publisher source
Smallcap fund correction: Trim exposure if it exceeds 20%, avoid full exit