Companies with a market capitalization less than Rs. 500 Crore are categorized as small-cap companies. Over 95% of Indian companies are considered as small-caps. This type of companies holds a rank above 251 and tends to perform during the initial phase of economic recovery and the stocks issued by such companies are termed as small-cap stocks.

Investors, who want to generate higher returns from their investments, tend to find small-cap stocks a suitable option for them. Additionally, individuals who have a high-risk tolerance level and can bear exposure to market risks may consider this investment option. These stocks are very volatile and are vulnerable to market hazards when the market is in a slump. Investors can mitigate the risk associated with small-cap equities by diversifying their portfolio with market-friendly alternatives.