What are Small Cap Mutual Funds?
Small Cap mutual fund are the funds that invest in small cap companies. Small cap companies are those companies whose market capitalization is under Rs 5000 crore. Small Cap Mutual Funds by regulation have to invest at least 65% in stocks of small cap companies along with some mid cap and large cap companies in portfolio. Despite these allocations, these funds are always small cap heavy and therefore carry the risk-reward mix associated with small cap.
List of Top 5 Best Small Cap Mutual Funds in India
| Scheme Name | AUM Size in Cr | 3 Yr Return | 5 Yr Return | Expense Ratio |
| Quant Small Cap Fund | 4092 | 65.98% | 25.60% | 0.62% |
| Nippon India Small Cap Fund | 23910 | 54.46% | 17.13% | 1.63% |
| Kotak Small Cap Fund | 9230 | 46.06% | 16.88% | 1.74% |
| SBI Small Cap Fund | 16592 | 39.94% | 15.84% | 1.88% |
| Axis Small Cap Fund | 12256 | 38.54% | 19.74% | 1.69% |
Above mutual fund schemes selected based on 3- and 5-years Return.
Expense ratio is the amount that an Asset management company charges investors to manage an investment portfolio. This ratio represents all of the management fees and operating costs of the fund.
Who Should Invest in Small Cap Funds?
Investors seeking greater potential gains and are comfortable with higher risks are the ones who can benefit most from the opportunities presented by small caps. For young individuals who have recently begun earning and venturing into investments, it is advisable to include at least one small cap fund in their portfolio, as opposed to older individuals. Since Small Cap Funds exhibit significant volatility in the short term, it is important for investors to contemplate investing in such schemes only if they plan to remain invested for a minimum of five years or more. Additionally, small cap funds can serve as a diversification tool within an investor’s portfolio.
Advantages of Investing in Small Cap Funds
- High growth potential
- Diversification of portfolio
- Early entry in an early stage promising companies
- Offer higher returns compared to mid and large cap funds
Despite these potential benefits, it’s important to note that investing in small-cap mutual funds also carries risks. It can be more volatile and contains market and business risks.
Conclusion:
As we know Smallcap companies are subject to high risk compared to Mid and Large cap companies but it has more potential to generate better return than others. Investors must keep in mind that it can be more volatile in shorter term than in the long run. It’s crucial to carefully assess your risk tolerance and investment objectives before making any investment decisions. Additionally, consider consulting with a financial advisor who can provide personalized advice based on your specific circumstances.
