Is it beneficial to invest in small and mid-cap stocks?

Stocks of the companies that have small proportion of market share in their industries and with good managements bear foremost potential of exponential growth. Such companies are usually have  small cap and medium cap stocks and therefore Multibagger stocks are generally from small or medium cap stocks.

Now what is this Multibagger returns or Multibagger Stocks???

Multibagger stocks are stocks that are expected to give multiple times returns in specific time period. Suppose stock delivered you 1 time (100%) return in 3 years than the stocks are known as single bagger stocks. If stocks give 5 times returns then they are 5 bagger stocks. Same way if you get multiple times returns it means those are multibagger stocks. For multibagger stocks you would need many bags to carry its returns. Small cap and mid cap stocks has high growth capacity and deliver high ROI as gives high capital appreciation.

SO what are these Small- cap Stocks???

Small-caps stocks generally refers to, shares of companies where market capitalization, or the value of all shares owned by all shareholders in the company amounts to less than 500 million. This definition is not universal however, and in some cases companies with market capitalization of as high as 2 billion may be referred to as small cap stocks.

Although small cap stocks can belong to any industry, many small-cap companies are in new or high growth industries. These companies may lack stable revenue and earnings but generally promise superior growth prospects, and investors are drawn to invest in them in the search for potentially higher returns.

In general, small cap stocks are riskier as an asset class, since many small companies fail to continue as viable businesses. However, if a small company does succeed, it generally results in very handsome rewards for the investors in the stock of that company. Investing in small cap stocks therefore is not for everyone. Such investments are more suitable for growth investors, who are willing to take more risk and have longer investment horizon, therefore Multibagger stocks are also known as growth stocks.

It is a fact that many successful big companies started very small and their stocks were small cap stocks during the early stages of their evolution. The stock market is abound with examples of companies such as Nilkamal, Eicher Motors, Page Industries, to name a few, which were small businesses and had small market capitalization in the beginning. Those individuals who invested in such companies at an early stage and remained invested reaped huge returns over time. Long term investment in stocks can convert your merry thousand of rupees into lacs in time span of few years.  Below are few examples of it…

Most small cap stocks belong to companies that are still at an early stage of development. These companies are normally more focused and devote their attention to a particular business area. It is easier to analyze such companies and properly evaluate their business prospects in the near future as opposed to bigger companies that can have complex operations.