Small-cap mutual funds have gained immense popularity among investors seeking high-growth opportunities. These funds primarily invest in companies with smaller market capitalizations, often considered high-risk but with the potential for substantial long-term rewards. Over the past five years, certain small-cap mutual funds have delivered remarkable performances, outperforming their respective benchmarks. Here’s a detailed look at 10 such funds, their features, benefits, and why they are worth considering for your investment portfolio.
Top 10 Small-Cap Mutual Funds That Outperformed Benchmarks
- Axis Small Cap Fund
- 5-Year CAGR: ~24%
- Benchmark: Nifty Smallcap 250 TRI
- Highlights: This fund focuses on quality small-cap companies with strong growth potential. It emphasizes bottom-up stock selection.
- SBI Small Cap Fund
- 5-Year CAGR: ~23%
- Benchmark: S&P BSE Smallcap TRI
- Highlights: Known for consistent performance, the fund invests in high-growth potential small-cap companies.
- Kotak Small Cap Fund
- 5-Year CAGR: ~22%
- Benchmark: Nifty Smallcap 250 TRI
- Highlights: This fund has a well-diversified portfolio focusing on emerging sectors and growth-oriented stocks.
- Nippon India Small Cap Fund
- 5-Year CAGR: ~20%
- Benchmark: Nifty Smallcap 250 TRI
- Highlights: The fund identifies companies with scalable business models and sustainable growth.
- HDFC Small Cap Fund
- 5-Year CAGR: ~19%
- Benchmark: Nifty Smallcap 250 TRI
- Highlights: This fund adopts a disciplined investment strategy focusing on value-driven small-cap stocks.
- ICICI Prudential Small Cap Fund
- 5-Year CAGR: ~18.5%
- Benchmark: S&P BSE Smallcap TRI
- Highlights: Aim to invest in companies with strong management and the potential to grow over time.
- DSP Small Cap Fund
- 5-Year CAGR: ~18%
- Benchmark: Nifty Smallcap 250 TRI
- Highlights: The fund follows a mix of growth and value investing strategies to capitalize on market opportunities.
- Franklin India Smaller Companies Fund
- 5-Year CAGR: ~17.5%
- Benchmark: Nifty Smallcap 250 TRI
- Highlights: This fund focuses on undervalued companies with the potential for long-term appreciation.
- Tata Small Cap Fund
- 5-Year CAGR: ~17%
- Benchmark: Nifty Smallcap 250 TRI
- Highlights: It focuses on companies with strong fundamentals and sustainable business practices.
- L&T Emerging Businesses Fund
- 5-Year CAGR: ~16.5%
- Benchmark: Nifty Smallcap 250 TRI
- Highlights: Aims to identify emerging businesses with the potential to become large caps over time.
Why These Funds Outperformed Their Benchmarks
- Stock Selection: Most funds focus on a bottom-up approach, identifying companies with strong growth potential.
- Diversification: These funds minimize risk by investing across various sectors while maximizing returns.
- Fund Manager Expertise: Experienced fund managers play a crucial role in consistently beating benchmarks.
- Long-Term Focus: Small-cap funds thrive when held for the long term, leveraging market corrections and growth phases.
Benefits of Investing in Small-Cap Mutual Funds
- High Growth Potential: These funds have the potential to deliver higher returns compared to large-cap or mid-cap funds.
- Diversification: They expose various emerging businesses across sectors.
- Rupee Cost Averaging: Regular investments in small-cap funds through SIPs reduce the impact of market volatility.
- Wealth Creation: Their ability to outperform during bullish markets is ideal for long-term wealth creation goals.
What to Consider Before Investing in Small-Cap Funds
- Risk Appetite: Small-cap funds are volatile and may not suit conservative investors.
- Investment Horizon: A minimum of 5-7 years is recommended to see optimal results.
- Fund History: Review past performance to understand the fund’s consistency.
- Expense Ratio: Higher expense ratios can eat into returns, so choose funds with competitive costs.
- Portfolio Diversification: Ensure your portfolio is balanced and not overly reliant on small-cap funds.
Comparison Table of Top 10 Funds
Fund Name 5-Year CAGR Benchmark Expense Ratio Minimum SIP Amount
Axis Small Cap Fund 24% Nifty Smallcap 250 TRI ~0.50% ₹500
SBI Small Cap Fund 23% S&P BSE Smallcap TRI ~0.75% ₹500
Kotak Small Cap Fund 22% Nifty Smallcap 250 TRI ~0.60% ₹500
Nippon India Small Cap Fund 20% Nifty Smallcap 250 TRI ~1.00% ₹100
HDFC Small Cap Fund 19% Nifty Smallcap 250 TRI ~0.70% ₹100
ICICI Prudential Small Cap 18.5% S&P BSE Smallcap TRI ~0.65% ₹100
DSP Small Cap Fund 18% Nifty Smallcap 250 TRI ~0.75% ₹500
Franklin Smaller Companies 17.5% Nifty Smallcap 250 TRI ~0.95% ₹500
Tata Small Cap Fund 17% Nifty Smallcap 250 TRI ~0.80% ₹150
L&T Emerging Businesses 16.5% Nifty Smallcap 250 TRI ~1.10% ₹500
FAQs
Q. What is a small-cap mutual fund?
A. Small-cap mutual funds invest in companies with smaller market capitalization, typically ranked beyond the top 250 in market value.
Q. Are small-cap funds risky?
A. Yes, they are more volatile than large-cap or mid-cap funds. However, they offer higher long-term growth potential.
Q. How long should I stay invested in a small-cap fund?
A. A minimum investment horizon of 5-7 years is ideal to offset market volatility and realize potential gains.
Q. Can I invest in small-cap funds via SIP?
A. Yes, SIPs are a popular way to invest in small-cap funds, allowing you to benefit from rupee cost averaging.
Q. How do you choose the right small-cap fund?
A. Consider past performance, fund manager expertise, expense ratio, and alignment with your financial goals.
Small-cap mutual funds, though risky, can significantly boost your portfolio’s returns when chosen wisely and held for the long term. Investing in the funds listed above allows you to capitalize on emerging growth opportunities and outperform benchmarks effectively.
