Wanted to invest in small-cap stocks but don’t know how to select the best one with the least information available? Your answer lies in the small cap mutual fund. This mutual fund can give high returns with the benefit of diversification of small-cap stocks. In this blog, we’ll discover the details about the small cap mutual fund and the 10 best small cap mutual funds.
What is a Small Cap Mutual Fund?
Small Cap Funds, associated with the equity mutual funds world, have to put at least 65% of their overall assets in small-cap stocks. Small-cap stocks rank below 251 in terms of full market capitalization. In general, these companies have a market capitalization of less than ₹5,000 crores.
Best small cap mutual funds are known for investing in the high-growth business which entails the underlying risk as well. Small-cap companies are generally undervalued businesses, with the expectation to achieve their true value in the future. The chances of merger and acquisition by large companies potentially benefit these companies as well.
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10 Best Small Cap Mutual Funds to Invest for 5 Years
Here is the list of the top performing small cap mutual funds (Direct-Growth) to invest in for the long term:
| Best Small Cap Mutual Funds | Benchmark | Fund Size (in ₹ crores) | 1 Year Returns (%) | 5 Year Returns (%) | Expense Ratio (%) | ||
|---|---|---|---|---|---|---|---|
| Fund | Benchmark | Fund | Category Avg | Fund | |||
| Quant Small Cap Fund | Nifty Smallcap 250 TRI | ₹26,330.82 | 39.37% | 31.58% | 48.38% | 0.67% | 0.64% |
| Bank of India Small Cap Fund | Nifty Smallcap 250 TRI | ₹1,537.17 | 36.59% | 31.58% | 39.92% | 0.67% | 0.47% |
| Nippon India Small Cap Fund | Nifty Smallcap 250 TRI | ₹61,027.03 | 36.36% | 31.58% | 37.40% | 0.67% | 0.68% |
| Canara Robeco Small Cap Fund | Nifty Smallcap 250 TRI | ₹12,323.74 | 32.38% | 31.58% | 36.45% | 0.67% | 0.44% |
| Tata Small Cap Fund | Nifty Smallcap 250 TRI | ₹9,463.78 | 40.61% | 31.58% | 34.80% | 0.67% | 0.34% |
| Invesco India Small Cap Fund | BSE 250 Smallcap TRI | ₹5,352.82 | 42.58% | 30.46% | 34.26% | 0.67% | 0.41% |
| Kotak Small Cap Fund | Nifty Smallcap 250 TRI | ₹17,593.30 | 34.23% | 31.58% | 33.09% | 0.67% | 0.49% |
| HSBC Small Cap Fund | Nifty Smallcap 250 TRI | ₹16,919.61 | 34.16% | 31.58% | 32.97% | 0.67% | 0.68% |
| HDFC Small Cap Fund | BSE 250 Smallcap TRI | ₹33,504.02 | 28.82% | 30.46% | 31.22% | 0.67% | 0.68% |
| Axis Small Cap Fund | Nifty Smallcap 250 TRI | ₹23,952.33 | 30.48% | 31.58% | 30.02% | 0.67% | 0.55% |
*(Data as on December 3, 2024)
Overview of the Top 10 Small Cap Mutual Funds
Here are the details of the 10 best small cap mutual funds (as on December 3, 2024):
1. Quant Small Cap Fund
Quant Small Cap Fund NAV is ₹295.66. The minimum SIP amount is ₹1,000 while the lump sum investment is ₹5,000. The fund’s alpha is 5.94 and beta is 0.93. The top 3 allocations of this fund are cash holdings, Reliance Industries, and HDFC Bank.
Through a monthly SIP of ₹1,000 for 5 years, this top performing small cap mutual funds can grow your total investment of ₹60,000 to more than ₹2.47 lakhs.
2. Bank of India Small Cap Fund
The next one on the list of best small cap mutual funds is Bank of India Small Cap Fund and its NAV is ₹55.83. The minimum SIP amount is ₹1,000 while the lump sum investment is ₹5,000. The fund’s alpha is 4.93 and beta is 0.80. The top 3 stock allocations of this fund are Ami Organics, Vijaya Diagnostic Centre, and Granules India.
Through a monthly SIP of ₹1,000 for 5 years, your total investment of ₹60,000 in Bank of India Small Cap Fund would become more than ₹1.88 lakhs.
3. Nippon India Small Cap Fund
Nippon India Small Cap Fund NAV is ₹199.09. The minimum SIP amount is ₹100 while the lump sum investment is ₹5,000. The fund’s alpha is 7.46 and beta is 0.82. The top 3 stock allocations of this fund are Multi Commodity Exchange Of India, HDFC Bank, and Tube Investments Of India.
Through a monthly SIP of ₹1,000 for 5 years, your total investment of ₹60,000 in Nippon India Small Cap Fund would become around ₹1.73 lakhs.
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4. Canara Robeco Small Cap Fund
Canara Robeco Small Cap Fund, one of the best small cap mutual funds, has a NAV of ₹45.10. The minimum SIP amount is ₹1,000 while the lump sum investment is ₹5,000. The fund’s alpha is 3.96 and beta is 0.74. The top 3 allocations of this fund are Multi Commodity Exchange of India, cash holdings, and Kaynes Technology India.
Through a monthly SIP of ₹1,000 for 5 years, your total investment of ₹60,000 in Canara Robeco Small Cap Fund would become approx ₹1.68 lakhs.
5. Tata Small Cap Fund
Tata Small Cap Fund NAV is ₹47.96. The minimum SIP amount is ₹100 while the lump sum investment is ₹5,000. The fund’s alpha is 7.80 and beta is 0.70. The top 3 allocations of this fund are BASF India, cash holdings, and Kirloskar Pneumatic Company.
Through a monthly SIP of ₹1,000 for 5 years, your total investment of ₹60,000 in Tata Small Cap Fund would become approx ₹1.59 lakhs.
6. Invesco India Small Cap Fund
Invesco India Small Cap Fund NAV is ₹47.06. The minimum SIP amount is ₹500 while the lump sum investment is ₹1,000. The fund’s alpha is 6.67 and beta is 0.75. The top 3 stock allocations of this fund are Aditya Birla Real Estate, Kalyan Jewellers India, and IIFL Wealth Management.
Through a monthly SIP of ₹1,000 for 5 years, your total investment of ₹60,000 in Invesco India Small Cap Fund would become approx ₹1.57 lakhs.
7. Kotak Small Cap Fund
Kotak Small Cap Fund, another best small cap mutual funds, has an NAV of ₹326.22. The minimum SIP amount is ₹100 while the lump sum investment is ₹100. The fund’s alpha is 0.99 and beta is 0.72. The top 3 stock allocations of this fund are Cyient, Techno Electric & Engineering Company, and Century Plyboards (India).
Through a monthly SIP of ₹1,000 for 5 years, your total investment of ₹60,000 in Kotak Small Cap Fund would become around ₹1.51 lakhs.
8. HSBC Small Cap Fund
HSBC Small Cap Fund NAV is ₹98.90. The minimum SIP amount is ₹500 while the lump sum investment is ₹5,000. This best small cap mutual funds’ alpha is 5.51 and beta is 0.81. The top 3 stock allocations of this fund are Apar Industries, Aditya Birla Real Estate, and Neuland Laboratories.
Through a monthly SIP of ₹1,000 for 5 years, your total investment of ₹60,000 in HSBC Small Cap Fund would become approx ₹1.50 lakhs.
9. HDFC Small Cap Fund
HDFC Small Cap Fund NAV is ₹161.01. The minimum SIP amount is ₹100 while the lump sum investment is ₹100. The fund’s alpha is 4.28 and beta is 0.79. The top 3 allocations of this fund are cash holdings, Firstsource Solutions, and eClerx Services.
Through a monthly SIP of ₹1,000 for 5 years, your total investment of ₹60,000 in HDFC Small Cap Fund would grow to around ₹1.42 lakhs.
10. Axis Small Cap Fund
The last in the list of top 10 small cap mutual funds is Axis Small Cap Fund and its NAV is ₹123.57. The minimum SIP amount is ₹100 while the lump sum investment is ₹100. The fund’s alpha is 3.77 and beta is 0.66. The top 3 allocations of this fund are cash holdings, Blue Star, and Brigade Enterprises.
Through a monthly SIP of ₹1,000 for 5 years, your total investment of ₹60,000 in Axis Small Cap Fund would grow to approx ₹1.37 lakhs.
Pros of Small Cap Mutual Fund
After knowing the list of best small cap mutual funds, let’s find out the benefits of investing in these funds:
1. High Growth Potential
A small cap mutual fund has a higher growth potential because it invests in high-growth stocks. These companies are still young and can generate multi-bagger returns in the long run with a scope of high growth.
2. Fund Manager Expertise
The fund manager is the one who selects high-quality small-cap stocks and tries to generate alpha returns. This means that the investor of a small cap mutual fund is not required to search and analyze small-cap stocks for which information is not easily available.
3. Outperformance in Bull Market
The best small cap mutual funds tend to outperform in the bull or rising market. During these times, small-cap companies tend to generate higher returns than large and mid-cap companies which have a stable business model and have fewer growth opportunities.
4. Risk Mitigation through Diversification
Investing in single small-cap stock comes with a high risk as these companies are not secure from market turbulence. However, small cap funds invest in multiple small-cap stocks and also provide the cushion of large or mid-cap stocks and other instruments.
5. Good for High Risk Taking Investors
Small cap funds are fit for aggressive and high-risk-taking investors as they look for extraordinary returns. For those who have long-term investment goals and want to earn higher returns with a high-risk appetite, then small cap funds can be a suitable choice.
Cons of Small Cap Mutual Fund
1. Extremely Risky
A small cap mutual fund entails a very high level of risk as this fund invests in companies that are still at the nascent stage. The future of small-cap companies is highly uncertain and they have to compete with the large names in the industry which have a huge capital and customer base.
2. Underperformance in Bear Market
When the market is falling, then small cap funds cannot withstand as the underlying small-cap stocks tend to fall. These companies with a smaller market share and lesser capital cannot fully secure themselves from the market or industry-level downturns.
3. Taxation Rule of Small Cap Mutual Fund
Once you have earned the small cap mutual fund returns, then you also have to pay a tax on earnings as well. LTCG of more than ₹1.25 lakhs is taxed at a rate of 12.5% earned after 12 months. STCG is taxed at a flat 20% rate with a holding period of less than 12 months.
Conclusion
A small cap mutual fund is an equity mutual fund that allows you to invest in multiple small-cap stocks. These stocks can generate higher returns but certainly come with a high level of risk. In order to select the best small cap mutual funds, you can check the returns, expense ratio, fund manager details, and other performance ratios.
But while investing in any mutual fund, it is better to do your research and keep your investment objective in mind. Open Demat account with SMC Global Securities and keep investing in stocks, or mutual funds like a pro.
FAQs
1. Which small-cap mutual fund is best in India?
One of the best small cap mutual funds is Bank of India Small Cap Fund which has generated 39.92% returns in the last 5 years and has a lower expense ratio as well.
2. What is the return rate of SBI Small Cap Mutual Fund?
SBI Small Cap Mutual Fund has generated 28.79% returns in the last 5 years and 30.33% in the last 1 year.
3. What is a small-cap in a mutual fund?
Small cap in a mutual fund is related to investing majorly in small-cap stocks providing the benefits of high returns, professional expertise, and diversification.
References:
https://www.smctradeonline.com/invest/mutual-funds
https://www.mutualfundssahihai.com/en/what-small-cap-mutual-funds
Author: All Content is verified by SMC Global Securities.
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