Small-cap mutual fund investments can be lucrative investment options in India for investors due to their potential for multi-bagger returns. India has been one of the fastest-growing major economies in the world. The country’s GDP growth provides a fertile ground for small-cap companies to thrive as they benefit from expanding economic activities and increasing consumer spending. Rapid digitalization and government initiatives like Make in India, Startup India, and MSME incentive support are offering a conducive environment for small companies to thrive and grow faster.
What are Small-cap Mutual Funds?
A small-cap mutual fund is a type of equity mutual fund that primarily invests in stocks of small-cap companies. These companies generally have a smaller market capitalization compared to mid-cap and large-cap companies. It is suitable for the investor who has high-risk tolerance and seeking high growth potential to invest for long-term objectives.
Comparison with Global Peers
With robust economic growth and government reforms, nearly 74% of small-cap mutual funds in India have outperformed their benchmark index in the last five years. Exposure to high-growth sectors and supportive policies also contributed to the performance.
Let us look at the performance of some of the best small-cap mutual funds in India.
| Scheme Name | Returns | Expense Ratio | |||
| Since Inception | 1-year | 3-year | 5-year | ||
| Nippon India Small Cap Fund-Direct-Growth | 28.04% | 58.68% | 34.96% | 35.21% | 0.68% |
| Tata Small Cap Fund-Direct-Growth | 29.85% | 49.81% | 30.21% | 32.72% | 0.34% |
| Axis Small Cap Fund -Direct-Growth | 25.79% | 40.14% | 26.70% | 29.77% | 0.55% |
| Quant Small Cap Fund-Direct-Growth | 20.35% | 68.12% | 34.46% | 44.34% | 0.64% |
| Edelweiss Small Cap Fund-Direct-Growth | 33.11% | 51.65% | 29.22% | 33.23% | 0.43% |
1. Nippon India Small Cap Fund-Direct-Growth
Nippon India Small Cap Fund has been generating consistent returns since its inception. This fund has assets under the management of INR 51,566 Cr as of 31st May 2024 and the current net asset value (NAV) is INR 188.31. Capital goods, Financial, Services, and Healthcare are the focus sectors of this fund.
2. Tata Small Cap Fund-Direct-Growth
Tata Small Cap Fund is one of the funds that has the lowest expense ratio. It has also been delivering the highest returns over the last five years. This fund has assets under the management of INR 7,083 Cr as of 31st May 2024 and the current net asset value (NAV) is INR 43.46. Financial, Services, Capital goods, and Chemicals are the focus sectors of this fund. Some of the top holdings in the portfolio are BASF India Ltd., Quess Corp Ltd., and Elantas Beck India Ltd.
3. Axis Small Cap Fund -Direct-Growth
Axis Small Cap Fund is known to be the best in the category for protecting against volatility and consistent returns. This fund has assets under the management of INR 20,504 Cr as of 31st May 2024 and the current net asset value (NAV) is INR 112.98. Financial, Construction, Healthcare, and Capital goods are the focus sectors of this fund. The top holdings in the portfolio are Narayana Hrudayalaya Ltd., Blue Star Ltd., and Brigade Enterprises Ltd.
4. Quant Small Cap Fund-Direct-Growth
Quant Small Cap Fund has been known to be the best in the category for generating the highest and most consistent returns. This fund has assets under the management of INR 21,243 Cr as of 31st May 2024 and the current net asset value (NAV) is INR 285.61. Financial, Energy, Services, and Construction are the focus sectors of this fund. The top holdings in the portfolio are IRB Infrastructure Developers Ltd. and JIO Financial Services Ltd.
5. Edelweiss Small Cap Fund-Direct-Growth
Edelweiss Small Cap Fund has delivered consistent returns over the last five years. This fund has assets under the management of INR 3,422 Cr as of 31st May 2024 and the current net asset value (NAV) is INR 46.15. Capital goods, Financial, Construction, and Healthcare are the focus sectors of this fund.
On the other hand, Small-cap mutual funds in the US have faced challenges in delivering strong returns in recent years due to various reasons. This includes economic uncertainty, significant exposure to underperforming sectors, market saturation, market volatility and more.
Let us look at the performance of some of the best small-cap mutual funds in the US
| Scheme Name | Returns | Expense Ratio | |||
| 1-year | 3-year | 5-year | 10-year | ||
| DFA US Small Cap Growth Portfolio | 0.33% | 9.12% | 7.29% | 7.52% | 0.33% |
| Needham Aggressive Growth Fund | 15.96% | 12.66% | 18.05% | 11.64% | 1.85% |
| T.Rowe Price Small-Cap Stock Fund | -6.72% | 1.59% | 5.93% | 7.70% | 0.91% |
Conclusion
In comparison to their global peers, small-cap mutual funds in India have outperformed over the last many years. Exposure to high-growth companies, market inefficiencies, supportive government policies, and robust economic growth have contributed to the higher growth in the category.Â
Also Read: Why Investing in Mutual Funds Makes Sense for Diversification?
