Mid and small-cap funds are both types of equity mutual funds and are segregated based on their market capitalisation. They are known for their potentially significant returns when invested long-term. Market capitalization is equal to the number of shares issued by the company multiplied by the market price per share.
Mid-cap mutual funds have a market capitalisation between Rs. 5,000 crore and Rs. 20,000 crores and small-cap funds have a market cap of around Rs. 5,000 crore or less. These mutual funds generally carry a higher risk when compared to large-cap funds, but with careful investing and good management, can generate significant returns long-term.
In this comprehensive article, we are going to cover everything you need to know – factors, advantages, suitable investor target, and much more in addition to a top 10 listicle – to make investing in mid and small-cap mutual funds easy.
|Fund Name||1 Year Returns (%)||3 Year Returns (%)||Net Assets (crores)|
|L&T Emerging Businesses Fund – Direct-Growth||47.99||90.03||INR 8,166.74|
|Nippon India Small Cap Fund – Direct-Growth||42.12||122.10||INR 18,933.35|
|Axis Small Cap Fund – Direct-Growth||41.34||134.28||INR 8,410.88|
|Kotak Small Cap Fund – Direct-Growth||37.35||148.33||INR 6,810.75|
|Sundaram Small Cap Fund – Direct-Growth||35.53||88.79||INR 2,099.17|
|Motilal Oswal Mid Cap 30 – Direct-Growth||35.42||91.15||INR 2,643.97|
|IDFC Sterling Value Fund – Direct-Growth||35.32||84.41||INR 4,495.38|
|DSP Small Cap Fund – Direct-Growth||34.95||111.14||INR 8,793.13|
|PGIM India Mid Cap Opportunities Fund – Direct-Growth||34.88||154.97||INR 4,362.77|
|HSBC Small Cap Equity Fund – Direct-Growth||34.48||91.81||INR 338.24|
|Union Small Cap Fund – Regular Growth||32.46||85.25||INR 593.77|
|Templeton India Equity Income Fund – Direct-Growth||31.10||85.04||INR 1,242.02|
|Aditya Birla Sun Life Mid Cap Fund – Direct-Growth||30.71||72.38||INR 3,424.59|
|Franklin India Smaller Companies Fund – Direct-Growth||30.09||76.06||INR 7,208.87|
|Navi Large & Mid Cap Fund – Direct-Growth||26.81||73.83||INR 145.06|
Disclaimer – Mutual funds are subject to market risks, so make sure to read all scheme-related documents carefully.
High-risk appetite investors who are looking to accumulate some quick wealth can invest in mid and small-cap types of equity funds. Since these funds belong to the high-risk-high-reward category, it’s advisable for beginner investors to stay away from them and stick to debt securities till they get used to the market trends.
The volatile markets might have whiplashing effects on the returns and investors need to be wary of this phenomenon. While these types of equity funds perform really well during the bull markets, they tend to bring negative returns during bear markets. The key is to invest and hold on to the investments for a longer time horizon to escape such volatile impacts.
An investor who doesn’t have his investment goals sorted out before they start to invest might end up making rookie mistakes. It is highly crucial to evaluate the long-term investment goals before investing. Analysing the investment goals includes deciding the kind of returns you need, the risk involved that you can handle, and the purpose of your investment (is it for retirement, wealth generation, or to beat inflation, etc.). Mapping out all your needs and choosing the right kind of fund to invest in will give you desired results.
Equity mutual funds in general and mid and small-cap funds, in particular, are high-risk-high-reward funds, which when invested in for the right time period can generate huge returns in bull markets. This is evident from the aforementioned table of the top 15 funds. Experienced investors having a high-risk appetite and wishing to generate a lot of wealth long-term can invest in these types of funds. It is also important to not compare yourself with other people as the financial objectives are never the same for two investors.
The historic trends of a mutual fund give meaningful insights as to how the fund has performed in the past and how it’s going to perform in the future. Comparing your chosen fund’s returns and other parameters with other similar funds in the market will also help you in deciding if the said fund is perfect for you or not.
Most fund houses that invest in companies and securities collect a fee for administrative purposes called expense ratio from investors. The expense ratio is usually a small percentage of a scheme’s total assets and is not the same for two funds. Analyse the expense ratios, calculate how much you’ll be paying and compare it with other funds as well. While the percentage in itself might seem small, the amount might be huge in absolute terms.
Since mid and small-cap funds are types of equity mutual funds, they follow the tax structure of equity funds, which is as follows:
The capital gains earned on redemption of the units within 1 year of investing are treated as Short Term Capital Gains (STCG) and are taxed at 15 percent.
If an investor holds investments for more than a year and redeems units after this time period, the gains are classified as Long Term Capital Gains (LTCG) and are free if the profits are under ₹ 1 Lakh, but taxed at 10 percent if the gains exceed ₹ 1 Lakh.
10 percent TDS (Tax Deducted at Source) is deducted on dividends exceeding INR 5000 earned.
Since the returns are extremely high in mid and small-cap funds (refer to the table given in the top 15 funds section), when the investments are held for a period of around 3 to 5 years, the capital has immense growth potential.
Investors who start investing in equity mutual funds face the whole brunt of the market volatility and instabilities. This increases their experience and knowledge of how the markets work, which they can use to improve their investing techniques and portfolios.
So that brings us to the end of a comprehensive article on mid and small-cap types of equity mutual funds. We covered a list of top 15 funds, factors to consider before investing in these types of funds, advantages, taxability, and target investors. That’s all you need to go ahead and invest with confidence.
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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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