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What are Small Cap Mutual Funds?

Highlights

  • Small Cap Funds invest in small companies that have a potential to grow in the future thereby generating good returns.
  • Some small cap mutual funds have brought the investor attractive 5-year return upto 18.14%.

As the name suggests, small cap mutual funds are those schemes that invest heavily in the stocks of companies whose market capitalization is low. Market capitalization is computed by multiplying the current market price of shares of the company by the total number of outstanding shares. Company whose market capitalization is less than INR 500 crores are considered to be small cap companies.

Recommended Small Cap Funds to Invest In!

Fund Name1 Year Return 3 Year Return 5 Year return  
Franklin India Smaller Companies Fund-17.73%1.25%10.09%
Reliance Small Cap Fund-13.76%8.01%13.41%
SBI Small Cap Fund-11.87%10.68%18.14%
DSP Small Cap Fund -16.78%-0.44%11.63%
HDFC Small Cap Fund-16.01%8.48%11.95%

Note: All the data that has been mentioned in this articleis sourced from Value Research as on Aug 02, 2019. Data here is in regards to the Regular Plan.

For Whom is the Small Cap Equity Funds the Most Suitable?

It is advisable for cautious and moderate risk takers to stay away from it. Only the people who want aggressive returns and at the same time can make peace with the losses, can invest in small cap funds. To a first time investor, the idea of investing in small cap funds may sound fascinating, but try refraining from investing in these funds. Only investment connoisseurs and well-informed investors should invest in these schemes because they have an idea of how the market is going to move. In order to reap fruitful returns, one must invest in small cap funds for at least 7 to 10 years and be patient with your investment.

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How Risky are Small Cap Funds?

All small cap companies are mostly startups and very small enterprises with a great future potential. They can jump up the ladder to be a mid cap companies, and eventually, large cap companies. But there are high chances of it failing miserably also. This makes the stocks of these companies extremely volatile. As the companies selected in the small cap mutual funds schemes are not well-established companies, chances are that they might go out of business, thereby, making the investment a risky one.

Disclaimer: Mutual Fund Investments are subject to market risks, read all scheme related documents carefully before investing.