Mutual Fund Recommendation: ICICI Direct Picks 5 Small Cap Mutual Funds, Good To Invest In 2023

ICICI Direct in its year-end Mutual Fund Review report published on 23 December 2022 has recommended 5 Small Cap equity mutual funds. These 5 funds are HDFC SmallCap Fund, ICICI Prudential Smallcap Fund, Invesco Small Cap Fund, Kotak Smallcap Fund, and Nippon Small Cap Fund. Below we have highlighted these 5 funds:

HDFC Smallcap Fund

This is a mutual fund equity-oriented fund from the house of HDFC Mutual Fund. It is a highly risky fund with 3-star rating by Value Research and 2-star rating by CRISIL. This fund has maximum exposure to services, financial, and capital goods sectors. The top holdings of the fund are in Bank of Baroda, Sonata Software, Bajaj Electricals, Firesoure Solutions, and The Great Eastern Shipping. Its Asset Under Management is Rs 14,689 crore. It has given 31.79% annualised returns on 3 years of SIP, under the Direct Plan-Growth option.

 

ICICI Prudential Smallcap Fund

This is another small-cap equity mutual fund from the house of ICICI Prudential Mutual Fund. The fund has been rated 4-star by Value Research and CRISIL, respectively. It has maximum exposure in the Services, Healthcare and Capital Goods sectors. The top holdings of the fund include Inox Leisure, Rolex Rings, CCL Products (India), Multi Commodity Exchange of India, and Cyient. Its Asset Under Management is Rs 4,591 crore as on 30 November 2022, while the expense ratio is 0.81%. It has maximum 32.73% annualised returns on 3 years of SIP. One can start SIP in this fund with Rs 100 and for minimum investments Rs 5000 is required.

Invesco Smallcap Fund

This is a fund from the house of Invesco Mutual fund. It is the 3rd Small cap fund in the list recommended by the brokerage. It has been rated 2 star by CRISIL and 3 star by Value Research, As the fund is an equity-oriented fund, it is also rated very risky for investments. The fund has maximum exposure in Equity, around 97.28%. It has maximum exposure in the Capital Goods and Financial sector followed by the Material and Automobile sectors. In terms of top holdings, Timken India, Craftsman Automation, Indian Bank, VIP and Rolex Rings are included. Its Asset Under Management is 1,418 crore as on 30 November 2022 and the expense ratio is 0.78%. The fund under the Direct Plan-Growth option has given maximum 27.68% annualised returns in 3 years of SIP. One can start SIP in the fund with minimum required amount of Rs 500. Whereas, for lump-sum investments, the minimum required amount is Rs 1,000.

Kotak Smallcap Fund

This Small Cap equity mutual fund is from the house of Kotak Mahindra Mutual Fund launched on February 24, 2005. Value Research rated the fund 4-star and CRISIL rated it 3-star. Like its peer funds mentioned above, it is also a highly risky fund for investments. The fund has 96.68% investments in domestic equities. Whereas in terms of maximum exposure in sectors, the top sectors include Material, Consumer Discretionary, Chemicals, and Metals & mining. Its top holdings include Carborundum Universal, Century Plyboards (India), Ratnamani Metals & Tubes, Galaxy Surfactants, and Cyient. NIFT Smallcap 250 TRI is its benchmark. As on 30 November 2022, its Asset Under Management is Rs 8,498 crore. Its expense ratio is 0.59%. You can start SIP in this fund with minimum Rs 1,000 and for lump sum investments, the minimum required amount is Rs 5,000.

Nippon Small Cap Fund

This Small cap fund is from the house of Nippon India Mutual Fund. It is also a top-rated equity fund like others on the list. Both the agencies, Value Research & CRISIL rate the fund 4-star, however, the fund is highly risky for investments. The fund has major investments, around 96.61% in the equities Sector wise top holding of the fund includes Capital Goods, Financial, and Chemicals. Whereas, its top holdings include Tube Investments of India, HDFC Bank, Bank of Baroda, KPIT Technologies, and Tejas Network. Its Assets Under Management as on 30 November 2022 is Rs 23,765 crore and its expense ratio is Rs 0.86%. To begin investing in this fund via SIP, the minimum amount required is Rs 1,000 and for Lump sum investments, the minimum amount required is Rs 5,000. It has given 36.58% maximum Annualised returns on 3 years of SIP.

Equity market Outlook

According to the ICICI Direct, Global growth continued to moderate during the month with major economies witnessing a synchronised slowdown and financial conditions in most advanced economies (AEs) remaining tight on account of central banks being in a tightening mode. Indian economic activity indicators continued to be resilient supported by domestic consumption despite weakness in the external sector.

At near all-time high levels, Indian markets are trading at premium valuations. On a one year forward basis, the Nifty is trading at ~19.4x P/E that seems expensive (i.e. at ~13% premium) vs. its past 10 year's average at ~17.1x. Notably, S&P 500 is trading at ~18.8x one year forward PE vs. its 10 year forward PE average of 20.3x (i.e. at ~7% discount). However, superior growth visibility both on the economic and corporate front, along with far lower inflation trajectory rightly explain the premium valuations for the Indian market.

However, with markets recovering almost all their losses and trading back to around all-time highs, it is better to adopt a buy on dips allocation strategy instead of lumpsum at current levels.

Disclaimer

Mutual fund investments are subject to market risk. Read all scheme related Terms and Conditions carefully before investing. The above-mentioned information is purely informational and doesn't guarantee any return. The Greynium Information Technologies and the Author are not liable for any losses caused as a result of a decision based on the article.