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Mid and small cap mutual funds may make a comeback, but don’t rush to invest

Many gloomy investors
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Many gloomy investors

Many investors, especially those who have invested in small cap schemes, are extremely concerned about their investments. Many of them are worried after their investments have lost 15-20 per cent in the last one year or so. This should serve as a lesson for those rushing to join the mid cap and small cap party.

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Don’t focus on higher returns
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Don’t focus on higher returns

Mutual fund advisors say investors should not focus unduly on investment options and likely returns. These advisors say the focus should solely be on the goal. The goal, investment horizon, and risk profile should get more weight in investment decisions. If you overlook these aspects, you might join those hapless investors worried about their risky investments now.

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Tread carefully
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Tread carefully

Don’t take the so-called revival for granted. As you know, despite a slew of stimulus measures by the central government, the economic activity is yet to pick up. Unless the economic outlook changes dramatically, mid cap and small cap segments are unlikely to see a complete change of fortunes. Even if there is a revival in the meanwhile, it may be limited to select stocks and schemes.

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Do you need the extra returns?
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Do you need the extra returns?

After watching investors’ reaction after the poor show of mid cap and small cap schemes recently, many mutual fund advisors and planners are asking investors to find out whether they really need the extra 2-4 per cent returns to reach their goal. If no, there is no point going through the pain, they add.

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Do not invest if you can’t tolerate the pain
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Do not invest if you can’t tolerate the pain

Mid cap and small cap mutual funds offer higher returns because they are risky. You simply can’t avoid risk and volatility if you are investing in these schemes to earn extra returns. If you can’t bear the pain of seeing your investment losing most of its value or a prolonged volatile phase, don’t invest in mid cap and small cap schemes. You should stick to relatively safer and less volatile options like aggressive hybrid schemes, large cap schemes, multi cap schemes, and so on.

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