normalnormalnormalWhether or not you should invest in small-cap stocks will depend on your risk appetite, financial goals and investment horizonAs part of their portfolio diversification, many people invest in small-cap stocks. These are relatively cheap and have potential to deliver big profits. Data from the past decade shows that small-cap stocks have witnessed substantial growth during times of bull runs. However, sharp downward corrections have also been noted. If you are planning to invest in small-cap stocks, here are some important things to understand.Opportunities with small-cap stocksWith initiatives like ‘Make in India’, there’s significant opportunities for small businesses in sectors such as technology, manufacturing and infrastructure. Also, India is among the fastest growing major economies in the world. If you choose the right small-cap stock, you can get good returns in the medium to long term. In the last decade, the BSE Smallcap Index has registered CAGR growth (compounded annual growth rate) of 14-15%.Small businesses have much higher growth potential, especially in a fast-developing country like India. One can do the basic technical analysis and evaluate future growth prospects to identify the best small-cap stocks. With small-cap stocks, investors can also increase their exposure to emerging sectors. Plenty of opportunities exist in areas such as artificial intelligence, fintech, renewable energy, next-gen defense equipment, etc.Risks associated with small-cap stocksWhile small-cap stocks may seem attractive, it is also important to be aware of the risks. One of the key characteristics is the possibility of huge fluctuations in prices of small-cap stocks. It is not uncommon to see prices of small-cap stock corrections of up to 50%. You need to be patient and think from a long-term perspective. For day traders or short-term traders, the price fluctuations can also be a big opportunity.Another issue with small-cap stocks is the relatively lower trading volumes. In case the stock price plateaus, it may be difficult to sell the stocks. This can be a problem especially when you want to sell immediately. Small businesses often have limited access to funds. They face competition from both large businesses as well as newer, disruptive products or business models. You have to be really good in identifying small-cap stocks that can survive and grow over the long-term.How much to invest in small-cap stocks?If you want to limit your risks, you can allocate 5-10% of your funds to small-cap stocks. Make sure you invest only in the best small-cap stocks. For a more balanced approach, you can increase your exposure to small-cap stocks to around 15-25%. If you are aiming for higher returns and have financial backing to write off any potential losses, your investment in small-cap stocks can be around 30-40% of your overall portfolio.DISCLAIMER – This article is for informational purposes only and does not constitute financial advice. Always conduct your own research or consult a professional before making any investment decision. Investments are subject to market risks.By: Pankaj BansalnormalnormalThe post Small-Cap Stocks – Risk Or Golden Opportunity? appeared first on Chandigarh City News.