Small cap mutual funds are open-ended equity funds that invest primarily in stocks of small cap companies with the aim to provide significant returns in the long term. Any company ranked 251st position onwards in terms of market capitalisation (less than Rs.5,000 crore) is a small cap company. As per SEBI (Securities and Exchange Board of India) guidelines, small cap fund funds should invest at least 80% of their total assets in small-cap companies. Check out our list of 15 best small cap funds and select the fund that suits your investment goals.
The table below shows some of the best-performing small cap funds 2023:
|Quant Small Cap Fund||NAV: ₹141.13|
Expense Ratio: 0.62%
AUM: ₹3301.73 Crore
|Canara Robeco Small Cap Fund||NAV: ₹23.7|
Expense Ratio: 2.05%
AUM: ₹4831.89 Crore
|Bank of India Small Cap Fund||NAV: ₹25.6|
Expense Ratio: 2.78%
AUM: ₹414.89 Crore
|Nippon India Small Cap Fund||NAV: ₹91.34|
Expense Ratio: 1.78%
|Tata Small Cap Fund||NAV: ₹23.57|
Expense Ratio: 1.93%
AUM: ₹3300.82 Crore
|Edelweiss Small Cap Fund||NAV: ₹24.49|
Expense Ratio: 2.21%
AUM: ₹1458.46 Crore
|Kotak Small Cap Fund||NAV: ₹157.78|
Expense Ratio: 1.87%
|Axis Small Cap Fund||NAV: ₹61.95|
Expense Ratio: 1.95%
|ICICI Prudential Smallcap Fund||NAV: ₹52.83|
Expense Ratio: 2.06%
AUM: ₹4618.03 Crore
|HDFC Small Cap Fund||NAV: ₹80.18|
Expense Ratio: 1.84%
AUM: ₹14648.76 Crore
|Sundaram Emerging Small Cap – Series 3||NAV: ₹19.06|
Expense Ratio: 1.35%
AUM: ₹297.65 Crore
|Sundaram Emerging Small Cap – Series 2||NAV: ₹17.18|
Expense Ratio: 1.32%
AUM: ₹335.21 Crore
|DSP Small Cap Fund||NAV: ₹109.32|
Expense Ratio: 1.83%
AUM: ₹8953.55 Crore
|Sundaram Emerging Small Cap – Series 6||NAV: ₹22.39|
Expense Ratio: 1.32%
|Sundaram Emerging Small Cap – Series 5||NAV: ₹19.83|
Expense Ratio: 1.34%
AUM: ₹79.64 Crore
Launched in November 1996, Quant Small Cap Fund is known as one of the best performing small cap funds due its consistent performance in the last 3 years. The primary investment objective of the scheme is to seek to generate capital appreciation and provide long-term growth opportunities by investing in a portfolio of Small Cap companies. Let’s look into the fund details:
Also considered as one of the top-performing small cap mutual funds, Canara Robeco Small Cap Fund has 96.34% investment in domestic equities of which 4.34% is in large cap stocks, 17.8% is in mid cap stocks, 55.11% in small cap stocks. The scheme could be ideal for Investors who are looking to invest money for at least 3-4 years and looking for very high returns.
Bank of India Small Cap Fund is considered as one of the best small cap mutual funds. This fund invests predominantly in equity and equity related securities of small cap companies. Under normal market conditions, the fund will invest 65% to 100% of assets in a diversified portfolio constituting equity and equity-related instruments of small cap companies with sustainable business models, and potential for capital appreciation. Let’s look into the scheme details:
One of the best-performing small cap mutual funds based on 3-year returns, Nippon India Small Cap Fund aims to generate long-term capital appreciation by investing predominantly in equity and equity related instruments of small cap companies. Let’s look into the scheme details:
Tata Small Cap Fund is considered as one of the top 5 small cap mutual fund schemes based on its 3-year performance. This fund aims to generate long term capital appreciation by predominantly investing in equity and equity-related instruments of small cap companies. The scheme is suitable for investors looking for long-term capital appreciation.
This fund invests in small businesses that aim to deliver exponential business and earnings growth. This fund is ideal for investors who want to stay invested for 7-10 years. Let’s look into the scheme details:
Launched in February 2005, this small cap fund from Kotak Mutual Fund aims to generate capital appreciation from a diversified portfolio of equity and equity related securities. This scheme could be ideal for investors having an investment horizon of 7 years or more. Let’s look into the scheme details:
Axis Small Cap Fund was launched on October 27, 2013. It is a relatively new fund compared to other small-cap funds in the Indian mutual fund industry. Despite its relatively short track record, the fund has gained popularity among investors due to its consistent performance and the expertise of its fund management team.
This mutual fund scheme is ideal for investors with an investment horizon of 5 years or above looking for long-term capital appreciation. The fund has 92.19% investment in domestic equities of which 4.16% is in mid cap stocks, and 60.89% in small cap stocks. Let’s look into the fund details:
This scheme is ideal for investors looking to generate long-term capital appreciation/income. The fund invests predominantly in small cap companies and could be suitable for investors with an investment horizon of more than 5 years. Let’s look into the scheme details:
The fund has 57.96% investment in domestic equities of which 3.14% is in large cap stocks, 2.6% is in mid cap stocks and 38.61% in small cap stocks. The fund is ideal for investors who are looking to invest money for at least 3-4 years and looking for very high returns. Let’s look into the scheme details:
This small cap mutual fund scheme has 33.03% investment in domestic equities of which 1.95% is in large cap stocks, 2.56% is in mid cap stocks, 20.65% in small cap stocks. This fund is suitable for investors who are looking to invest money for at least 3-4 years and looking for very high returns.
Launched in 2007, DSP Small Cap Fund invests in some of the smallest, fastest growing and innovative Indian companies. The fund considers companies with strong business models in high growth sectors and efficient management teams focused on utilizing resources wisely to eventually unlock high-growth potential. Here are the fund details:
This small cap fund fund has 86.66% investment in domestic equities of which 3.17% is in large cap stocks, 2.6% is in mid cap stocks and 61.57% in small cap stocks. The fund is suitable for investors who are looking to invest money for at least 3-4 years and looking for very high returns. Here are the fund details:
This mutual fund scheme has 86.68% investment in domestic equities of which 3.17% is in large cap stocks, 2.59% is in mid cap stocks, and 61.69% in small cap stocks. The fund could be suitable for investors looking for long-term capital growth. Here are the fund details:
Small cap mutual funds invest a significant share of their corpus in stocks of small cap companies having a market share of less than Rs.5,000 crore. For actively managed small cap funds, the fund manager picks, buys and sells stocks based on the scheme’s investment objective with the sole intention to beat the benchmark index. The aim of these funds is to provide substantial returns to long-term investors. The returns of these funds are directly dependent on the performance of its underlying stocks. Let’s understand the working of a small cap fund with an example.
Nippon India Small Cap Fund has 96.48% investment in domestic equities of which 8.39% is in large cap stocks, 7.3% is in mid cap stocks and 63.89% in small cap stocks. As you can see, the fund has a significant chunk of share in small cap stocks. However, for diversification, the fund also invests in large cap and mid cap stocks and the remaining in debt instruments.
Point to Note: Staying invested in small cap funds for the long-term without getting influenced by short-term dips could help you generate substantial returns. This is why small cap funds are also considered as a retirement-corpus building fund.
Here are some of the advantages of investing in small cap funds:
Small cap companies often have higher growth potential compared to larger, more established companies.
Small cap funds provide exposure to a wide range of small cap companies and can help diversify an investment portfolio.
Fund managers have the expertise and resources to conduct thorough research and due diligence on small cap companies, which individual investors may not have.
Like any other equity funds, small cap funds are highly liquid, allowing investors to easily buy and sell their shares.
Consider the following factors while choosing best small cap funds:
Make sure the fund aligns with your investment goals, such as growth or income.
Look at the fund’s historical performance and compare it to the performance of similar funds and the benchmark index.
Consider the fund’s expense ratio, which is the annual fee charged by the fund manager.
Research the fund manager’s investment style, track record, and tenure with the fund.
Check the number of holdings in the fund’s portfolio and the sectors it invests in to ensure a well-diversified portfolio.
Small-cap equity funds can be very risky investments, however, they can also provide the best returns. These stocks suffer the most during a sharp fall in the stock market and are subject to high volatility. As a result, only investors able to take high risks may consider these investments.
These mutual funds have the potential to offer superior returns over a long period compared to other types of equity funds. This is because companies with low market cap have a large potential to grow over time. Accordingly, there’s ample room for the company’s stock price to increase.
Sharp falls and prolonged periods of volatility are common for small cap funds. As such, these are unsuitable for investors who have a low-risk appetite. However, patient investors who are willing to hold onto their investments for a long time (say 7 years or more) can get unmatched returns.
Here’s how you can invest in small cap funds:
Got to the AMC’s (Asset Management Company) website or app
Select a small cap scheme based on your investment objective and risk tolerance
Complete your KYC with PAN and Aadhaar
Start investing in lump sum or via SIP
The returns on small cap funds are taxed like any other equity funds.
Small cap funds have the potential to generate higher returns. However, before investing in the best small cap funds 2023, you should assess your risk tolerance and investment objective. Also, staging invested in small cap funds for the long term could help you generate significant returns albeit with risks.
In case you’re planning to invest in equity but worried about the risks involved, you can start investing with Navi Mutual Fund. Why Navi? You get to access a host of low-cost funds across sectors and geographies just with Rs.10!
Depending on the holding period, short-term capital gains (STCG) tax of 15% or long-term capital gains (LTCG) tax of 10% is applicable on the realised returns. Nevertheless, note that LTCG of up to Rs. 1 lakh is tax-free.
This is because these funds invest in companies with small market capitalisation, which can be negatively affected by price fluctuations in the stock market. Hence, these funds are a risky bet. That said, in comparison to other mutual funds, these schemes have the potential to generate higher returns.
Ans: You can pick a small cap fund that invests that offers high sectoral diversification. Also, you can look at other factors like past performance, the experience of the fund manager, and more.
Small cap funds can offer higher returns than other equity-oriented mutual fund schemes. That said the rate of return depends on various factors, such as the market scenario, the experience of the fund manager, etc.
A common rule of thumb for stock investments is that you need to have a long investment horizon owing to the market fluctuations.
Small cap mutual funds are a type of equity funds that invest a significant portion of their corpus in stocks of small cap companies having a market cap of less than Rs.5,000 crore. These funds are ideal for investors having a long-term investment horizon and strong risk appetite.
Here are some of the best performing small cap funds based on 3-year returns:
1. Quant Small Cap Fund
2. Canara Robeco Small Cap Fund
3. Bank of India Small Cap Fund
4. Nippon India Small Cap Fund
5. Tata Small Cap Fund
Small cap funds have the potential to generate highest returns across all fund categories in the long-term. However, these funds are prone to market volatility as they invest in smaller companies, meaning their prices can fluctuate rapidly and unpredictably. So, consider your investment objective, investment horizon and risk tolerance before investing in these funds.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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