#smallcapmutualfund

Investing in small-cap mutual funds offers several potential advantages compared to large-cap funds. Here are some key benefits:

Higher Growth Potential: Small-cap companies are often in the early stages of their growth cycle and have more room for expansion and significant revenue increases. As these companies grow, their stock prices can appreciate rapidly, providing substantial returns to investors.

Market Inefficiencies: Small-cap stocks are less analyzed and followed by market analysts compared to large-cap stocks. This can lead to pricing inefficiencies, allowing skilled fund managers to identify undervalued stocks and capitalize on these opportunities.

Diversification Benefits: Including small-cap funds in an investment portfolio can enhance diversification. Small-cap stocks tend to have different performance cycles compared to large-cap stocks, potentially reducing overall portfolio risk when combined with large-cap investments.

Higher Alpha Generation: Due to the potential for significant undervaluation and less market coverage, small-cap mutual funds may have a higher capacity to generate alpha (returns above the market average) compared to large-cap funds, particularly in bullish market conditions.

Entrepreneurial Spirit: Small-cap companies often have innovative business models and operate in niche markets. Investing in these companies can provide exposure to new and emerging industries, which can be rewarding if these industries experience rapid growth.

Long-Term Outperformance: Historically, small-cap stocks have outperformed large-cap stocks over the long term, despite higher volatility. Investors with a longer investment horizon may benefit from this trend, assuming they can tolerate short-term market fluctuations.

However, it's important to note that investing in small-cap mutual funds also comes with higher risks:

Higher Volatility: Small-cap stocks tend to be more volatile than large-cap stocks. Their prices can fluctuate more dramatically due to lower trading volumes and sensitivity to economic changes.

Liquidity Risks: Small-cap stocks may have lower liquidity, making it harder to buy or sell shares without impacting the stock price.

Business Risk: Small-cap companies might have less stable earnings, less diversified product lines, and greater exposure to market downturns.

A common dilemma that many mutual fund investors face during their investment journey is picking out the best MF schemes. So many options are available that one can easily be left spoiled for choice. However, general rules of thumb can help you zero in on the right scheme. For instance,  if you are seeking growth, and can digest a tad extra volatility, then small-cap mutual fund investments are the perfect pick. These mutual funds primarily invest in companies with a market capitalization of less than INR 5000 crores for their immense potential to provide massive returns to investors. Let us check out the best small cap mutual funds for investments. 

Quant Small Cap Fund

With annualized returns of over 46 percent in the past three years, Quant Small Cap Regular Fund is one of the best-performing mutual funds in this category. The five biggest holdings of this fund include ITC, RBL Bank, Punjab National Bank, Jindal Stainless, and IRB Infrastructure Developers. It also has significant holdings in  Bikaji Foods International Ltd, HFCL, and India Cements. 

Canara Robeco Small Cap Fund

Canara Robeco Small Cap Regular Fund has one of the lowest expense ratios in the category at 2.06 percent, making it one of the best small cap mutual funds in India. City Union Bank, KEI Industries, Cera Sanitaryware, Multi Commodity Exchange Of India, and Ultratech Cement are its top five holdings. 

Axis Small Cap Fund

Axis Bank is amongst the most respected and sought-after banking institutions in India, and its mutual fund vertical is no different. Axis Small Cap Regular Fund scheme has helped investors earn over 21 percent annual returns over the past three years, and around 18 percent CAGR over the last five years. The scheme also has a low expense ratio of 1.92 percent, which makes it more attractive for investors.  

Kotak Small Cap Fund 

Another good option for people looking to make small cap mutual funds investments is Kotak Small Cap Regular Fund. With an expense ratio of 1.90 percent, the fund has grown investor funds at a CAGR of more than 26 percent in the past three years. Carborundum Universal, Ratnamani Metals & Tubes, and Century Plyboards India are amongst its biggest holdings. 

ICICI Prudential Small Cap Fund

ICICI Prudential Small Cap Regular Fund is another renowned mutual fund scheme in the category. The scheme has given almost 25 percent annual returns in the past three years, helping investors gain massive returns on their investments. The fund has invested three to four percent of its corpus in INOX Leisure, Cyient, Rolex Rings Private, Multi Commodity Exchange Of India, CCL Products (India), and KEI Industries.