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5 Best Small Cap Equity Mutual Funds To Invest In

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First, we would like to inform readers, that just like small cap stocks, small cap equity mutual funds could also be risky bets. If you are prepared for higher returns with higher risks, this is the right place to be in. Here are 7 Best Small cap Mutual Funds to invest in:

 

1. Axis Small Cap Fund – Growth

1. Axis Small Cap Fund – Growth

Axis Small Cap Fund has been a good performer in its category in the last few years. The fund has a 5-star rating from Crisil. Very few funds in its category have received this rating from Crisil. An investment of Rs 1 lakh made three years ago in the fund, would have grown to Rs 1.57 lakh. This is a solid return of 16.16 per cent on an annualized basis. If you had to invest by way of Systematic Investment Plans or SIPs in the fund of Rs 10,000 every month, your investment would be Rs 3.6 lakhs, but, your current portfolio would be Rs 4.63 lakhs.

The fund has a very strong portfolio including the likes of MAS Financial Services, City Union Bank, Galaxy Surfacants and Canfin Homes. It's important to remember that if you opt for dividends than from the next financial year, they are not tax free.

 

2. Kotak Small Cap Fund
 

2. Kotak Small Cap Fund

Kotak Small Cap Fund has been rated 4-star by Crisil. The returns from the fund over the last few years has been very good. A sum of Rs 1 lakh invested in the fund about three years ago, would now fetch Rs 1.28 lakhs. It's important to remember that your investment time frame should be at least for a period of 5-7 years to get decent returns. The stocks that comprise the portfolio of the fund including Galaxy Surfacants, Techno Electric and Engineering, JK Cement etc.

You can also opt for Systematic Investment Plans in the fund, through a small amount of Rs 1,000 each month. A monthly SIP of Rs 10,000 each month has built a corpus of Rs 3.98 lakhs over the last three years. The assets under management of the fund is to the tune of Rs 1,360 crores.

 

3. Nippon India Small Cap Fund - Growth

3. Nippon India Small Cap Fund - Growth

Nippon India Small Cap Fund has a 4-star rating from Value Research Online. An amount of Rs 1 lakh invested in the fund would have today fetched Rs 1.32 lakhs. That is a return of more than 10 per cent on an annualized basis.

In the Union Budget 2020-21, Finance Minister, Nirmala Sitharaman has recommended that dividends would henceforth be taxed. This means that dividends from equity mutual funds would now be added to the total income and taxed as per their slabs. So, you might want to choose the growth option, in place of the dividend option.

This is a small cap equity mutual fund scheme that has sizeable assets under management of almost Rs 8,300 crores. The net asset value under the growth plan is Rs 41.21.

 

4. HDFC Small Cap Fund – growth

4. HDFC Small Cap Fund – growth

This is one of the largest small cap equity mutual funds in the country with assets under management of more than Rs 9,000 crores. The fund has been accorded a good rating of 4-star by Value Research. If you had to place a sum of Rs 1 lakh in the fund about three years ago, the same would be worth Rs 1.31 lakhs today.

One can invest in the HDFC Small Cap Fund by way of SIP, where a small sum of Rs 500 can be invested each month. The fund has holdings in companies like Sonata Software, NIIT Technologies, INOX Leisure, DCB Bank etc.

At the moment almost 87 per cent of the funds are invested in equities, while the fund does hold almost 8 per cent in cash and cash equivalents.

 

5. DSP Small Cap Fund – growth

5. DSP Small Cap Fund – growth

This fund has three star rating from Crisil and Value Research. The fund has generated a 1-year returns of almost 11 per cent, thanks to sharp gains in the stock markets over the last one year. The longer term returns of even 7 years has been very good of almost 18 per cent on an annualized basis.

This is among the bigger small cap mutual fund schemes in size and has assets under management of nearly Rs 5,000 crores. The portfolio of the fund comprises of good quality stocks including names like IPCA Labs, Atul Ltd, APL Apollo Tubes, DCB Bank, SRF etc.

Those looking at a long-term perspective may buy into the fund. It's important to remember that one does not have to look for short term gains in mutual funds, but, more of a long-term play.

As mentioned, dividends from mutual funds would be taxed from the next financial year. So, if you are not paying taxes, it would make sense to invest in dividend distribution plans. Or else, you might simply want to look at some of the growth options that the small cap equity mutual funds offer.

 About the author

Sunil Fernandes, the author of this article has been covering stock markets and mutual funds for more than 25 years now, including equity research. 

Read more about: equity mutual funds small cap
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