Small-cap funds are a kind of equity fund that mainly makes investments in companies across all market sectors that have market capitalisations between Rs. 10 crores and Rs. 500 crores. These businesses are listed in the list of companies with the highest market capitalisation after the top 250. In this article, we look at how to choose the best small-cap mutual fund.
What are Small-Cap Mutual Funds?
Small-cap funds are equity funds made up of equity-linked securities and equities, ranked after the top 250 in market capitalisation. Since these companies are smaller in size, they have the potential to grow significantly. Hence, they can provide more returns when compared to mid-cap or large-cap funds.
On the other hand, these funds are also very volatile, and the risks are higher than those of different funds.
Best Small-Cap Mutual Funds to Invest
Here are the top 10 small-cap mutual funds to invest in 2024 in India based on 5 Yr returns:
| Scheme Name | Category Name | AuM (Cr) | 3Y | 5Y |
| Quant Small Cap Fund – Direct Plan – Growth | Small Cap Fund | 20,164.09 | 35% | 41% |
| Bank of India Small Cap Fund – Direct Plan – Growth | Small Cap Fund | 1,052.37 | 27% | 33% |
| Nippon India Small Cap Fund – Direct Plan – Growth | Small Cap Fund | 50,422.78 | 33% | 32% |
| Canara Robeco Small Cap Fund – Direct Plan – Growth | Small Cap Fund | 10,085.98 | 28% | 30% |
| Edelweiss Small Cap Fund – Direct Plan – Growth | Small Cap Fund | 3,361.40 | 27% | 30% |
| Tata Small Cap Fund – Direct Plan – Growth | Small Cap Fund | 6,951.59 | 29% | 29% |
| Kotak Small Cap Fund – Direct Plan – Growth | Small Cap Fund | 14,815.19 | 23% | 29% |
| Invesco India Smallcap Fund – Direct – Growth | Small Cap Fund | 3,964.76 | 28% | 29% |
| Axis Small Cap Fund – Direct Plan – Growth | Small Cap Fund | 20,136.63 | 25% | 28% |
| Union Small Cap Fund – Direct Plan – Growth | Small Cap Fund | 1,408.37 | 24% | 27% |
How Can I Pick the Best Mutual Fund for Small Cap?
Choosing the right small-cap mutual fund is essential for an investor’s portfolio. For example, the Nippon India Small Cap Fund is good as it has good 3-year and 5-year returns, and the AUM is very small. However, there are some things that you must consider before selecting the right fund:
- Investment risk –
Small-cap funds are high on risk; however, as an investor, you must check which fund can oversee the risk factor and offer potential returns. The best way is to compare the fund with other small-cap fund benchmarks and see which one has less risk than the others. - Returns –
Small-cap mutual funds are small companies that offer more returns than mid- or large-sized caps. Always compare the 3-year and 5-year returns of the fund before finalizing the best one. - Cost –
These small-cap funds are managed by fund managers and thus involve an expense ratio. The lower the expense ratio, the more the returns will be. However, one should not only consider the expense ratio alone. This ratio should be used to compare other metrics while making the choice. - Tax –
Small-cap funds are taxed as capital gains based on their invested time. The capital gains kept for one year are known as short-term capital gains, and those kept beyond one year are called long-term capital gains. Short-term ones are taxed at 15%, and long-term gains are taxed at 10%. - Investment goals –
These criteria are essential for every investor as they decide how long they want to keep the money invested. These funds offer good returns if invested for a long time. Hence, these goals are suitable for people who are looking to invest for 7-10 years or more.
Benefits of Investing in Small-Cap Mutual Fund
Listed below are some advantages of investing in small-cap mutual funds:
- Great returns –
These funds can offer significant returns compared to mid- and large-cap funds. This is because of the high growth potential of these small companies. - Low NAV –
Small-cap mutual funds are affordable with low NAV (net asset value). Hence, investors can purchase more units, which can have a significant impact on their portfolios. - Diversification –
Small-cap mutual funds are an excellent portfolio diversification option. This lowers the overall risk associated with your investments and raises the likelihood that you will be safe even during market turbulence.
Conclusion
Although historical performance does not ensure future outcomes, several mutual funds have excellent track records. Investors looking to get exposure to the possible growth prospects of small-cap firms might want to give them some thought. However, it’s essential to do extensive research, think about your investing goals and risk tolerance, and speak with a financial advisor before making any choices about your money.
