What are Small Cap Stocks?
Companies with a market value under Rs. 500 Crore are called small cap companies. The stocks issued by these companies are known as small cap stocks. In fact, there is a larger number of small-cap stocks in the market compared to the total of large and mid-cap stocks together. This is because this category covers a wide range of market capitalization. So, it allows more companies to fit into this category. They perform well during the initial phase of economic recovery. But they are quite volatile, especially during market downturns. So, they appeal to investors seeking higher returns and willing to take on more risk.
The top small cap stocks offer growth potential. But they are riskier than larger companies’ stocks. This is because they are not traded as often. However, investors can balance this risk by including more stable investments in their portfolios.
Why Should One Invest in Small Cap Stocks?
Individuals who invest in top small-cap stocks can get the following advantages -
• Fair Valuation
Large institutional investors face restrictions when investing in these stocks. It can limit their ability to drive up prices. This gives smaller investors an edge, allowing them to purchase small-cap shares at low prices.
• Higher Growth Potential
These smaller companies often experience better organic growth than large-cap ones. This is because there is more room to expand and raise capital over time.
• Affordable Quality Stocks
They are often overlooked due to market inefficiencies. So, their stocks can sometimes be undervalued. Investors need to research and analyze the market thoroughly. This can help them acquire high-quality stocks at lower prices.
• Variety of businesses
Small-cap companies do not consist of only start-ups. They can be found in all industries, and many of them have been in business for a while. This provides a variety of options for investing.
• Better Agility
Top small cap companies tend to be more nimble than large cap companies. This allows them to adapt to market changes and seize new opportunities quickly.
• Potential for Acquisitions
Small-cap companies are often appealing to larger corporations seeking acquisitions. Being acquired can significantly boost the stock price, leading to higher returns for investors.
How Can You Invest in Small Cap Companies?
You can invest in small cap stocks by buying shares through your brokerage or investment account. However, small-cap companies offer less information, like analyst research. They also carry more business uncertainty than larger firms.
So many investors opt for mutual funds or ETFs that track small-cap indexes or specific traits like growth or value. You can also consult a financial advisor regarding the small cap stocks list. They can help you ensure these additions align with your investment strategy.
