New Delhi, Nov. 3 -- Small-cap mutual funds can offer investors exposure to emerging businesses with the potential to become tomorrow's mid-cap and large-cap companies. However, their higher growth potential comes with greater volatility, making portfolio allocation particularly important.

Financial experts recommend keeping small-cap funds as a satellite allocation rather than making them the core of an equity portfolio. The appropriate allocation depends on an investor's financial goals, investment horizon and ability to withstand market volatility.

Rahul Jain, President and Head of Nuvama Wealth Management, said investors with a high risk appetite and an investment horizon of more than five years can consider small-cap funds as part ...