Explore the world of small-cap mutual funds and discover their historical performance and returns. Discover the best small-cap mutual funds for 2023. Gain insights into potential investment opportunities in this dynamic sector.
Overview
Small-cap equity funds are a type of mutual fund that invests in small-cap companies with a market capitalization of below Rs 5,000 crore. These funds are suitable for investors who have a slightly higher risk appetite and a long-term approach as they carry a higher level of risk than large-cap funds.
Small-cap stocks often fly under the radar of large institutional investors due to their limited liquidity, which allows these stocks to rise in value based on their own merits, increasing the chances of organic price growth.
Investing in small-cap funds also provides diversification benefits. In this article, we will discuss the things to consider as an investor, how small-cap equity funds work, who should invest in them, and the top 5 small-cap equity funds in India.
Things to consider as an investor
Before investing in small-cap funds, investors should consider the following factors:
Risk appetite: Small-cap funds are suitable for investors who have a slightly higher risk appetite and a long-term approach as they carry a higher level of risk than large-cap funds.
Portfolio surplus diversification: Investors should consider their portfolio and allocate a portion of their investment surplus as an asset allocation with 10-15% allocated to small-cap funds.
Amount: Investors should allocate an amount that they can afford to lose as small-cap funds are highly risky investments.
Advisors: Investors should consult with investment advisors to determine if small-cap funds are suitable for their investment goals and risk tolerance.
Mutual funds: Investors should understand the different categories of mutual funds, including small-cap, mid-cap, and large-cap funds and how they work.
How do Small-Cap Equity Funds work?
Small-cap equity funds invest in small-cap companies with a market capitalization of below Rs 5,000 crore. These funds are managed by professional fund managers who select stocks based on their research and analysis.
The fund manager invests the money collected from investors in a diversified portfolio of small-cap stocks. He then aims to generate returns for investors by investing in small-cap companies that have the potential to grow and generate higher returns.
Who should invest in Small-cap Equity Fund?
Small-cap equity funds are suitable for investors who have a higher risk tolerance and a long-term investment horizon. Investors who are looking to chase higher returns but have the patience to ride the volatility with long-term investment objectives can consider these funds.
Investment advisors recommend investors to dedicate a small portion of their portfolio towards small-caps. This is because small-cap stocks offer a great opportunity to earn huge returns. However, investors should be patient while investing in small-cap schemes as they are highly risky investments
Top 5 Small-cap Equity Funds in India
According to ET Money, the top 5 small-cap equity funds in India based on SIP returns as of November 2023 are:
- Axis Small Cap Fund
- SBI Small Cap Fund
- HDFC Small Cap Fund
- Kotak Small Cap Fund
- Nippon India Small Cap Fund
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The NIFTY Smallcap 100 index, which tracks the performance of small-cap companies in India, can be compared to the broader NIFTY 50 index to understand the performance of small-cap stocks against the overall market. Here’s a brief overview of the small-cap performance against NIFTY based on the provided information:
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