Small cap mutual funds are equity mutual funds that invest in companies with a smaller capitalization. These schemes can be highly volatile in a sense that when the going is good they can give whopping returns higher than the indices and when there is a sudden fall they can come crashing down.
These small cap mutual funds are recommended for those individuals who are willing to take a risk. Here are three small cap equity mutual funds that have the potential to do well in the long term and are highly rated by Crisil.
Axis Small Cap Fund
This fund has done really well over the last few years and has generated a return of 11.26 per cent on an annualized basis for the last 5-years.
The 1-year returns are pretty good at around 8.61 per cent, which beats even rates from fixed interest bearing instruments. The company's portfolio comprises small cap stocks like Galaxy Surfacants, Fine Organic Industries, Can Fin Homes, Tata Elxi and Brigade Enterprises.
Almost 94 per cent of the funds are deployed in equities and the balance in debt. The assets under management of the fund is Rs 2,930 crores. This is a good fund and has been rated 5-star by Crisil, thanks to its performance among other parameters.
Union Small Cap Fund
This is a good fund and is not rated 5-star, but, does have a 4-star rating from Crisil. The fund has given a solid 18 per cent returns in the last 1-year, though the 5-year returns is more subdued at 5.64 per cent on an annual basis.
The funds holdings comprise names like Indiamart Intermesh, Laurus Labs, PI Industries and Fine Organics. A Rs 10,000 SIP would have grown to Rs 4.10 lakhs in the last 36 months.
The minimum investment needed through the SIP route is Rs 2,000 each month. As is mentioned earlier the risk is very high given that the fund invests only in small cap stocks. Those who have an appetite for risk can invest in the same.
Kotak Small Cap Fund
Kotak Small Cap Fund too has got a 5-star rating from Crisil and a four star rating from Value Research. The fund has almost 99 per cent of its portfolio invested in stocks and barely any debt or cash holdings.
The net asset value under the growth plan is around that Rs 80 mark, while under the dividend plan the same is Rs 37.01.
The 1-year returns from the fund is more than 16 per cent, while the 5-year returns is close to that 8.90 per cent. Those looking at long-term investment, this is a good fund to bet on. However, one must keep in mind that it is a small cap fund and returns can be very volatile.
About the author:
Sunil Fernandes has spent 26 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. His forte remains stocks, commodities, debt, mutual funds and tax planning. Sunil is currently Managing Editor for Goodreturns.in