Micro Cap Mutual Funds

Micro Cap Mutual Funds

Micro Cap Mutual Funds are specialized investment funds that primarily invest in micro-cap companies, typically those with a market capitalization of less than INR 3500 Crore. The focus is on companies with significant growth potential despite their small size.

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What Is Micro Cap Mutual Fund?

In a Micro Cap Mutual Fund, the fund’s capital is invested in micro-cap companies. These firms fall at the lower end of market capitalization, usually less than INR 3500 Crore. Due to the focus on smaller companies, these funds present opportunities for high growth. However, they also carry a higher level of risk compared to other funds due to their exposure to small-scale companies.

Let us look at an illustration to help clarify. A Micro Cap Mutual Fund manager may decide to invest in a small tech startup working on an innovative product. If the startup becomes successful, the value of the mutual fund’s shares in the company will significantly increase, leading to substantial profits for investors. Conversely, if the startup fails, the investment could result in losses. 

Benefits Microcap Mutual Funds

The primary benefit of investing in Micro Cap Mutual Funds is the potential for significant returns. These funds invest in companies that are in their early stages but have the potential to grow exponentially, translating into increased profits for the fund’s investors.

Here are some benefits of investing in Micro Cap Mutual Funds:

  • High Return Potential: As these funds invest in small companies with immense growth possibilities, the potential for high returns is substantial.
  • Diversification: T