Market experts recommend that investors hold small caps for at least 10 years to benefit and allocate 8% of the portfolio to small caps.
Suggested Allocation: 50% large-cap, 30% mid-cap, 20% small-cap.
Bank of India Small Cap Fund Direct Growth
The Bank of India Small Cap Fund comes under the Equity category of Bank of India Mutual Funds. Minimum Investment Amount: The minimum amount required to invest in Bank of India Small Cap Fund via lump sum is ₹5,000 and via SIP is ₹1,000.
A 70/30 portfolio is an investment portfolio where 70% of investment capital is allocated to stocks and 30% to fixed-income securities, primarily bonds. Any portfolio can be broken down into different percentages this way, such as 80/20 or 60/40.
The 90/10 strategy calls for allocating 90% of your investment capital to low-cost S&P 500 index funds and the remaining 10% to short-term government bonds. Warren Buffett described the strategy in a 2013 letter to his company's shareholders.
There is great value in a 60/40 portfolio for most risk appetites. However, there is an argument that younger investors and those saving on a regular basis should consider adding more equities into the mix, perhaps looking at an 80/20 split as the equity side will likely drive returns over the longer term.
To find an appropriate investment mix for your time horizon, find your age and the corresponding portfolio allocation. A typical mixture could include 60% large-cap (established companies), 20% mid-cap/small-cap (small to medium-sized compa- nies), and 20% international (companies outside the U.S.) stocks.
Small-cap funds are riskier than large-cap funds and may not be suitable for everyone. Small-cap companies are more sensitive to market changes and can experience sudden and wide price fluctuations. Small-cap companies are less popular and smaller in size, making their stock less liquid.
While personal finance experts generally recommend allocating 25-35 percent of your investments to mutual funds, the exact allocation cannot be done using a one-size-fits-all approach. Understanding how much and in what level one should regularly invest in mutual funds, requires a thoughtful and personalised approach.
How Much of My Portfolio Should Be in Small-Cap Stocks? Small-cap stocks currently make up about 8% of the overall equity market, which is a reasonable target for the US stock portion of a portfolio.
The 5% rule says as an investor, you should not invest more than 5% of your total portfolio in any one option alone. This simple technique will ensure you have a balanced portfolio.
Small companies tend to underperform in recessions and bear markets because they simply don't have the same resources as large companies and aren't industry leaders that can more easily survive unexpected emergencies.
Cash and cash equivalents can provide liquidity, portfolio stability and emergency funds. Cash equivalent securities include savings, checking and money market accounts, and short-term investments. A general rule of thumb is that cash and cash equivalents should comprise between 2% and 10% of your portfolio.
With small-cap mutual funds, always opt to invest for the long Term. Therefore, the minimum period for which you should be investing in small-cap mutual funds is 5-6 years. As mentioned earlier, small-cap mutual funds tend to be very volatile. For example, they may go up and down in the short Term.
The main disadvantage of a small-cap fund is its higher risk profile, making it susceptible to market volatility and economic downturns.
Kotak Small Cap Fund and Axis Small Cap Fund gave 29.08% and 28.43% returns respectively in 2024. Quant Small Cap Fund offered a 28.34% return in the mentioned period. Franklin India Smaller Cos Fund gave a 26.31% return in the said period.
Given the changing macroeconomic backdrop, we outline why we see potential value for investors in small caps in 2024. The consensus is that interest rates look to have peaked, with markets now pricing in cuts across many major economies in 2024, something which could prove beneficial to small caps.
The Bottom Line
The 2% rule in investing suggests that you should never risk more than 2% of your capital on any single trade or investment. This approach helps manage risk by limiting potential losses and preserving capital for future opportunities.
Most investors think smaller companies underperform in a recession. In most cases, they are correct. However, what's less well-known is that small caps usually exit recessions quicker than assumed – outperforming large caps. This rebound can begin as early as three months into an economic downturn.
The 60/40 Portfolio Performance in 2024
Kephart: 2024 has been great for the 60/40 portfolio. It's up over 15% for the second year in a row. Both stocks and bonds have had positive returns.
Top Warren Buffett Stocks
Kraft Heinz (KHC), 325.6 million. Apple (AAPL), 300 million. Occidental Petroleum (OXY), 264.3 million. American Express (AXP), 151.6 million.
Warren Buffett has said that 90 percent of the money he leaves to his wife should be invested in stocks, with just 10 percent in cash. Does that work for non-billionaires? As far as asset allocation advice goes, 90 percent in stocks sounds pretty aggressive.