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Small Cap Funds Have Beaten Large Cap Funds; Should You Switch Now?


Investors in the small and mid cap funds are by and large a happy lot, if returns are anything to go by in the last 1 year.

When we say returns, what we mean is that they have limited their losses in the last 1 year.

Small Cap Funds Have Beaten Large Cap Funds; Should You Switch Now?
According to Value Research Online, Small cap funds have generated a return of -0.65 per cent in the last 1 year, as on April 18, 2016.

On the other hand large cap funds, have generated a return of -6.62 per cent in the last 1 year.

Take a look at the table:

1 Month 3 month 1 year
Large cap equity funds 4.19% 7.33% -6.62%
Small cap equity funds 8.06% 8.64% 0.65%
Mid Cap Equity Funds 6.59% 7.86% -2.09%

Source: Value Research Online

Select small and midcap funds have done well despite the indices dropping in the last 1 year,

When we say very well, they may not have even generated returns like bank deposits, but, better returns when compared to the indices. For example, SBI Small and Mid Cap Fund has given returns of more than 7.45 per cent, while the Franklin India Smaller Companies Fund has generated returns of almost 5 per cent.

The question is: should you switch funds now?

It is always a tricky question to answer. Small and mid cap companies are more volatile and if the markets fall, there is a high possibility that they could fall faster. It also depends on the choice of companies in the portfolio really.

Visit our mutual fund pages for NAVs, dividends, gainers and losers

For example, SBI Small and Mid Cap Funds has rallied because the stocks in its portfolio like Solar Industries, TV Today and MRF have all rallied. This has led to gains in the fund. So, one has to really examine the portfolio of a fund before investing. We believe that should the markets rally, mid cap and small cap funds have the potential to generate even higher returns. On the other hand on the way down, they can see a sharper reaction. If you are looking to invest, you can allocate equally money to small cap and mid cap funds and an equal amount to large cap funds.

Read more about: small cap funds large cap funds
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