While many mutual fund schemes are facing challenges, small-cap mutual funds have shown impressive returns, outshining their large-cap counterparts. Seven small-cap mutual funds have notably outperformed their benchmarks, providing substantial returns to investors.
What Are Small-Cap Mutual Funds? Small-cap mutual funds invest a significant portion of their investable corpus in equity or equity-related instruments of small-cap companies. According to SEBI regulations, these funds must allocate at least 80% of their total assets to small-cap stocks, defined as companies ranked below 250 in market capitalization, typically valued at less than ₹500 crore.
While small-cap funds offer high growth potential, they are also considered riskier. Minor market fluctuations can significantly impact the share prices of small-cap companies due to their smaller size and market presence.
Market Performance and Challenges Despite some volatility, small-cap mutual funds have continued to deliver strong returns. According to the Association of Mutual Funds of India (AMFI), inflows into open-ended equity mutual funds dropped 16% to ₹22,633 crore in March, with outflows from small-cap funds being a contributing factor. However, equity funds maintained positive inflows for the 37th consecutive month, and SIP investments surpassed ₹19,000 crore for the second consecutive month.
Top 7 Small-Cap Mutual Funds Delivering High Returns Amid market challenges, the following seven small-cap mutual funds have provided exceptional returns over the past three years:
- Bandhan Small Cap Fund – Direct Plan
- 3-year return: 48.56%
- Quant Small Cap Fund – Direct Plan
- 3-year return: 38.33%
- ITI Small Cap Fund – Direct Plan
- 3-year return: 42.03%
- Nippon India Small Cap Fund – Direct Plan
- 3-year return: 40.66%
- Franklin India Smaller Companies Fund – Direct Plan
- 3-year return: 39.83%
- Invesco India Smallcap Fund – Direct Plan
- 3-year return: 40.25%
- Fund – Direct Plan
- 3-year return: 38.94%
Should You Invest in Small-Cap Funds? While small-cap funds can offer high returns, they carry considerable risk and are best suited for investors with:
- High Risk Appetite: Small-cap funds can be volatile, making them more suitable for investors comfortable with market fluctuations.
- Long-Term Investment Horizon: Small-cap companies need time to grow and realize their potential, making a long-term investment strategy essential for maximizing returns.
- Diversification Strategy: Small-cap funds work well as part of a diversified portfolio, balancing risk with large and mid-cap investments.
If you are a conservative investor or have a short-term horizon, small-cap funds may not align with your investment goals. However, for those seeking long-term growth, these funds offer the opportunity to capitalize on the high growth potential of smaller companies.