New Delhi, Feb. 3 -- How would you know whether a small cap mutual fund is safe to invest in terms of future volatility? Among several metrics, you may also consider the results of 'stress test' which each mutual fund is supposed to reveal every month.

A small cap mutual fund invests a minimum of 65 percent of total assets in small cap stocks, per the Sebi's categorisation of mutual fund schemes. This means a minimum of 65 percent of assets are invested in small cap stocks which are not as liquid as their larger counterparts.

Small cap funds are typically quite volatile in nature but are seen to have a higher upside than their larger counterparts. As a result these funds drew considerable investment of retail investors in the past few y...