Small-cap mutual funds recommended for new investors

Vinit Sambre, Head of Equities at DSP Investment Managers, believes that small-cap mutual funds are a good choice for new investors. Despite a significant decline in the market, especially in the small-cap sector, he maintains that these funds offer a unique investment opportunity. The DSP Small Cap Fund has been consistent in its strategy. Launched in June 2007, the fund focuses nearly 90% of its investments on small-cap stocks. While the Nifty Small Cap index has dropped 21% in 2025, Sambre insists that investors choosing this fund should embrace the true characteristics of small-cap investing. The fund has seen a negative return of 19.2% so far this year. Sambre acknowledges the risks but emphasizes that enduring small-cap investments can lead to significant wealth over time. He advises young investors to have a long-term perspective of 10 to 15 years. He recalls starting a systematic investment plan for his children with a small-cap fund, which outperformed other options in his portfolio. Current market volatility is different from past downturns. Sambre points out that the uncertainty in the present market lacks a specific cause, unlike previous crashes that were driven by particular events. If the U.S. economy enters a recession, it could affect Indian markets, particularly through potential inflation and trade barriers. He also discusses the current participation of new investors in the market. According to him, many are hesitant to engage due to the ongoing market weakness. However, those who understand market cycles will remain involved and gradually increase their investments. Sambre recognizes that small-cap investing carries inherent risks, and it is crucial for investors to avoid poor-performing businesses. He believes in maintaining a rigorous investment framework that focuses on good governance and financial health, even among smaller companies. For 2025, Sambre sees promise in consumption sectors, especially in kitchenware and luggage. He also views healthcare and specialty chemicals as vital areas. Overall, he advocates for a balanced approach to asset allocation rather than focusing all investments in high-risk small-cap assets.