By : Dheeraj Upadhyay
If you can take the risk for returns then small-cap mutual funds are the best investment option to make a good return following India’s growth story. There are many small-cap funds that have given returns of more than 100% in the last year and have doubled investor’s money. However, experts do warn about risk pertaining to these funds due to their volatility and only who have the appetite to take risk should invest in them.
What are small-cap funds?
Small-cap mutual funds are funds that invest in small companies. Small-cap companies are those that have a market capitalization of less than Rs 5,000 crores. These companies are smaller in size but have significant growth potential in the future.
Small caps are beyond the top 250 companies in the stock market by market cap, small-cap mutual funds invest in the rest. Small-cap mutual funds generally invest up to 65% of their money in small companies. After this, the remaining 35% of the amount is invested by the fund manager in the stocks of mid or large-cap companies.
Invest in small-cap funds for longer duration
Do not go for small-cap mutual fund schemes for high returns in a short span of time. Small-cap funds are more volatile than large-cap and mid-cap funds. If you have a long-term investment plan and risk appetite, then these schemes will fetch you stellar returns.
Who should invest in these funds?
Small-cap mutual fund schemes can be risky due to their volatility and limited tradable stocks but are highly profitable due to their growth and return potential. Small-cap stocks are the most affected by the sharp fall in the declining market. That’s why only those investors who can take high risk and can bear the volatility are advised to invest in these funds. If you are a new investor and you do not understand investing in mutual funds, then it is better that you stay away from small-cap mutual fund schemes. Investors who are looking for high returns and have at least 3-4 years of the horizon can invest in this category of fund..
Facts about small funds
- Small cap stocks cost less than mid cap and large cap stocks.
- Small cap funds help in diversifying your portfolio.
- You are likely to get better returns in small cap funds. Since these companies are in their early stage of development, they have a lot of scope for high growth.
- As larger companies move towards stability, small caps have better chance of outperforming returns.
These three (3) funds have given excellent returns over the years
| Name of fund | 1 yr return (%) | Last 3 yr return (%) | Last 5 yr return (%) |
| Kotak Small Cap Fund | 119 | 24 | 21 |
| Nippon India Small Cap | 105 | 19 | 23 |
| ICICI Prudential Small Cap | 104 | 20 | 17.88 |
These are return of direct plans as per the NAV of 25-Jun-21.
Disclaimer: These are just fund information it shouldn’t be considered as investment advice from BuzinessBytes; before investing take advice of financial planner.