Invest Smart: Investing in Micro Cap funds - here's what you need to know

Micro Cap funds have been in the news off-late with Motilal Oswal launching India's first passive or index-based Micro Cap fund. As per reports, fundhouses are likely to launch more micro cap funds.

There is no formal definition of micro caps by capital markets regulator SEBI. It essentially forms a sub-set of small caps. However, from the point of view of micro cap funds, it would mean the universe of the 250 stocks that are beyond the top 500 stocks, says financial adviser Kalpesh Ashar.

Micro-cap funds primarily focus on investing in companies with small market capitalization, offering the potential for significant growth but with increased volatility and therefore significantly higher risk.

Investors must carefully assess their risk tolerance, financial goals, and investment horizon before venturing into micro-cap funds. These funds may not be suitable for risk-averse individuals seeking stability in returns.