Introduction
Small-cap mutual funds are designed for investors who want to capture the growth potential of emerging companies with small market capitalisation. They represent companies with a capitalisation of less than Rs.5,000 crores. The Securities Exchange of Board of India (SEBI) defines these companies as the ones ranked past the top 250 in market capitalisation (251 onwards). You get substantial opportunities for wealth generation but with a risk of high volatility with small-cap funds. In this blog, we explore the best small-cap funds you can invest in.
Top 5 small-cap mutual funds
Find below a list of the top-performing small-cap funds in India in 2024 :
The Nippon India Small-cap Fund is a standout performer in the small-cap category. It is known for its strong long-term track record. It has consistently delivered high returns, particularly for those investors willing to commit to a long-term horizon. The current NAV of this fund is 173.4927 with a 3-year return rate of 28.74%, and the fund size is Rs, 62259.55 crores as of 22nd October 2024. The minimum SIP amount is Rs. 5000 to invest in the fund.
The Tata Small Cap Fund has grown in popularity due to its consistent returns and focus on the quality of small-cap stocks. The fund invests in companies with strong business models and growth prospects. The fund's size is Rs. 9319.03 crores, with an NAV of Rs. 42.0411 and a 3-year return rate of 25.37% as of 22nd October 2023. The minimum SIP investment starts from Rs.5000.
The Bandhan Small Cap Fund, formerly known as the IDFC Small Cap Fund, is another high-performing fund with a focus on companies that have strong growth potential. The fund's disciplined approach to selecting stocks has allowed it to offer competitive rates. Its NAV stands at Rs.45.755 with a 3-year return rate of 26.44% for a Rs.8,489.25 fund size as of 22nd October 2024. You can invest in the fund with a minimum SIP amount of Rs.1000.
The HSBC Small Cap Fund Direct-Growth is known for its tactical approach. It targets companies that show a high potential for earnings growth. Despite being relatively new to other funds on the list, this fund has quickly gained traction due to its robust stock-picking strategies. Its NAV is Rs.85.6306 with a 3-year return rate of 25.52% and a Rs.17,306.2 fund size as of 22nd October 2024. You can invest in it with a minimum SIP amount of Rs.5,000.
The Invesco India Smallcap Fund is designed to capture opportunities in smaller, high-growth companies. It has shown strong performance with a focus on emerging sectors such as IT and consumer discretionary. The NAV of this fund is Rs.40.52 with a 3-year return rate of 24.43% at a Rs.5,376.18 fund size as of 22nd October 2024. You can invest in this fund with a minimum SIP amount of Rs.1,000.
How to choose the best small-cap fund?
When selecting a small-cap mutual fund, it is critical to evaluate the following factors :
· Past performance
Look at the fund's historical returns. The ideal period to consider is over 3-5 years. This helps you gauge its consistent performance.
· Expense ratio
A lower expense ratio ensures more of your money goes into the fund to help you make the most of its potential. Otherwise, it may get consumed by the fees and bog you down.
· AUM (Assets Under Management)
A larger AUM fund can be more stable, protecting your risk interest. On the other hand, a smaller AUM fund can be more active and able to capitalise on smaller opportunities.
· Sector allocation
Check the fund's portfolio to understand its diversification across high-growth sectors. Some examples include IT, industrials, and financials.
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· Risk-return profile
Out of all aspects, considering your risk appetite is extremely crucial. Small-cap funds can be volatile. So, ensure you are comfortable with the potential fluctuations.
Conclusion
The top small-cap funds mentioned above are excellent options if you are looking to capture the growth potential of smaller companies. These funds have demonstrated strong returns over the last 3 years, but they also come with a higher risk due to volatility. This is usually inevitable with small-cap stocks. Hence, it is important to analyse the funds thoroughly and make an informed decision based on your preference.
You can check aspects like the fund's sectoral allocation, historical performance, expense ratios, etc., to make a calculated selection that aligns with your financial goals. Remember, small-cap investing requires a long-term commitment. So, maintaining patience and having a sound strategy are key components to maximising returns.
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