Nippon India Small Cap Fund, the largest scheme in the small- cap space with assets of ₹36,540 crore in August 2023, has 196 stocks in its portfolio, compared to 148 a year ago.
"Given the limited liquidity in most small-cap stocks, a fund s internal prudential scrip wise exposure limits and the fund manager s perception on their valuation post the recent run-up, it is imperative for them to look for newer stocks to invest in," said Deepak Jasani, head of retail research at HDFC Securities.
"Investors should limit their sector exposure to not more than 5% and overall portfolio allocation to sector funds should not exceed 10%. Sector funds can be risky due to constant sector rotation in the market. It is difficult to predict which sector will perform well in the future. Diversified equity funds with graded sector exposure are a better option for most investors. Timing is crucial and buying when a sector is beaten down may be a good strategy."