Small and Mid- cap Mutual funds amid run up in valuation - Should you invest ? ~ Estate, Market, Fund, Insurance, Loan

Small and Mid- cap Mutual funds amid run up in valuation - Should you invest ?

by Mr. S. Sridharan, Head – Financial Planning

Wealthladder.co.in

In the recent days, the valuation of mid-cap and Small-Cap has run up and also there is a concern about the liquidity.

Is there value left in mid and small caps?

The mid and small cap at the present juncture is overvalued.

The P/E of nifty midcap 50 is presently at 35. In the last 3 quarters, the midcap valuations started picking up from March 2016 and peaked in September-2016.

In the month of September 2016, the nifty midcap 50 was at 69 and slowly it started reducing.

The present P/E of 35 is also not in a comfort zone. Though this has come down, there are few stocks left in the midcap segment with the attractive valuation.

The small cap is concerned, the rally started in April 2016 and peaked in Nov-2016.

The present P/E is 60, which is a great concern. At present few of AMC’s stopped accepting the fresh flow to small cap funds due to non-availability of scripts as well as the high P/E.

Apart from the valuation, the liquidity is a concern in the small & midcap mutual funds. The liquidity score on mid & small cap is averaged to 12 days. That means the funds would take 12 days to liquidate the entire portfolio at this juncture. Few funds has the liquidity score as high as 25 days.

What should investors’ strategy be who is interested in mutual fund in the small and mid-cap space?

It is always advisable not to have more than 20% in mid & small cap mutual funds as they are more volatile. If the investor would like to take a fresh exposure to mid and small cap, it is advisable to have an allocation of 20% on the overall portfolio with the time horizon of 5 plus years.

Mr. S. Sridharan, Financial Planner,
Wealth Ladder

If the investor is very particular about investing in mid and small cap, it is advisable to invest through sip over a long period. Lumpsum can be invested through STP mode and not advisable to invest in one trench.

Is it time to book profits?

If the investor is over exposed to mid and small cap and have invested in the last 3 years, it is advisable to book profits in their portfolio. If one is investing through SIP (systamatic investment Plan) and looking for more than 5 plus years of holding period, it is advisable to continue the sip.

Should you take fresh exposure?

Fresh exposure to small cap can be avoided at this juncture. If the investor is very particular, then they can invest through sip provided they are risk appetite is high and ready to hold for not less than 5 plus years.

The best mid and small cap mutual funds..?

The below are the funds handpicked based on the exposure towards the market categories and the risk.