Best 5 small cap mutual funds to invest

When it comes to mutual fund investments, most of the people will show their interest to invest in small cap mutual funds. You know why, the major reasons are the buzz that created around, and the past returns that the small cap funds have been generated. Even some of us blindly invests into the small cap funds, though they don’t have an idea about it. Here is the exclusive detailed article about the small cap mutual funds and best funds, that are available in the market. We have been filtered the entire small cap mutual funds and picked up best 5 small cap mutual funds to invest in india.

What are the small cap mutual funds?

In simple words, the small cap mutual funds are the funds which invests our money into the small cap companies. The small cap companies are the companies which are below top 250 companies based on market capitalization. Small cap mutual funds can invest into any of the stocks that are below 250, based on their strategy. Basically small cap mutual funds are highly volatile for short to medium term. Here the fund managers could take the high risk to generate better returns in the long term, so we need to understand these things firstly, before investing into the small caps.

Why should we invest in small cap mutual funds?

The best way to invest in stocks is mutual funds, to whom they doesn’t have basic idea about stock market to generate better returns compare to fixed depost and to beat the inflation. That to small caps can gerenrate better alpha than other categories of mutual funds. If you are aiming to create better corpus for your children over the next 10 years, small caps would be the better option as small caps are highly volatile in the short to medium term.

Things to be noted:

Small caps are highly volatile for the short to medium term
Purely for long term investors
SIP mode is always preferable
Our portfolio may go negative in first 2-3 years
High cyclicality and high risk involved
Fund manager plays key role
Always choose direct funds

Taxation:

Mutual funds investments are taxable. So that the small cap mutual fund investments are also taxable. There will be two types of taxations in the market, one is short term capital gains (STCG), will be applicable where you withdraw before one year. The STCG will be 15%. And the other one long term capital gains (LTCG), will be applicable where you withdraw after one year and the return should be above 1 lakh, in that case the LTCG will be 10%.

Best 5 Small Cap Mutual Funds:

1. Quant small cap fund

Current NAV : ₹147

Asset Size : ₹3134 Cr

Fund Manager : Sanjeev Sharma

Last 3 Yr Returns : 49%

Quant small cap fund is having 5 star rating in the small cap category which is having 0.64% of expense ratio. If you redeem or switched out of this fund before 1 year of allotment, there will be 1% of exit load, it means there will be 1% charges of your fund value. In this fund ITC, IRB infra, Jindal Stainless Steel, Punjab National Bank and RBL Bank are the top 5 holdings

2. Canara Robeco small cap fund

Current NAV : ₹25.4

Asset Size : ₹4709 Cr

Fund Manager : Shridatta Bhandwaldar

Last 3 yr teturns : 32.58%

Canara Robeco small cap fund is also a 5 star rated small cap fund. Which is having a 0.41% of expense ratio and as usual there will be 1% of exit load, if you redeemed before 1 year of allotment of units else it will be zero. TREPS, City union bank, KEI Industries, Cera sanitary, MCX are the top 5 allocated stocks in this fund.

3. Edelweiss small cap fund

Current NAV : ₹26.36

Asset Size : ₹1462 Cr

Fund Manager ; Sahil Shah

Last 3 yr returns : 28.64%

Edelweiss small cap fund is 4 star rated fund in the small cap category. Which is having 0.58% of expense ratio and there will be same 1% of exit load, if you redeemed before 1 year of allotment else there will be zero exit load. CCI, JB chem & pharma, Westlife food, KEI industries, Persistent systems are the top 5 allocated stocks in this fund.

4. TATA small cap fund

Current NAV : ₹25.47

Asset Size : ₹3184 Cr

Fund Manager : Chandraprakash Padiyar

Last 3 yr returns : 31.27%

TATA small cap fund is also a 4 star rated fund, which is having the lowest expense ratio of 0.27% only and as like as other direct funds there will be a 1% of exit load otherwise it’ll be zero. Reverse Repo, IDFC bank, Allcargo logistics, Redington, Radico Khaitan are the top 5 stocks that they’ve allotted.

5. Kotak small cap fund

Current NAV : ₹183.83

Asset Size : ₹8572 Cr

Fund manager : Pankaj Tibrewal

Last 3 yr returns : 28.57%

Kotak small cap fund is also 4 star rated fund, which is having 0.59% of expense ratio. As usual there will be 1% of exit load, if you redeemed before 1 year, otherwise it’ll be zero. Carborundum Uni, TREPS, Ratnamani metals, Century Plyboard, Cyient are top 5 allocations.

You can also look at Nippon small cap fund, which is having the asset size around 28000 cr, which is very huge, due to this reason we just avoided this fund, otherwise this fund alos a good fund in the small cap category. Nippon small cap fund delivered phenominal returns in the previous years. Still it’s a good fund.

Conclusion:

We’ve selected all above funds based on the AUM size, low expense ratio, and the potential they have upside. If you can see all 5 funds AUM size is below 10000 Cr, so that fund manager can use the funds effectively to deliver the good returns. Also we suggest you to select atleast two small cap funds to invest, if you would like to start with 1000 rs then split it into two parts and invest in two funds. One more thing you should keep in your mind is you must stay invested for at least 5 -7 years. So that we can see a good returns. Some times you may see negative returns in the small caps in first 3 – 5 years. So no need to worry about it, we just need to be stay invested, they’ll deliver total returns 1 – 2 years.