5 Best Small Cap Mutual Funds in India 2023

October 27, 2023by Supriya Kadu0

Looking for the best small cap mutual funds in India in 2023? Then you are in the right place. Here you are going to find out the best small cap mutual funds that have given good returns for the last few years. As it is said, past records don’t guarantee future returns. 

Small cap mutual funds can be very risky in the short term as they are extremely volatile. So while choosing these funds, keep in mind your financial goals and the risk factor. It would be a good idea to take advice from SEBI certified financial advisors about which fund to choose. 

Best small cap mutual funds to invest

What are Small cap mutual funds?

Equity mutual funds are categorised into three parts, which are Large cap, Mid cap and Small cap mutual funds, according to their market capitalization. Small cap mutual funds are subject to high risk in comparison to large cap and mid cap funds as they put money into companies that aren’t well known or studied.

During bearish market phases, small cap funds might experience intense volatility and increased downside. But in the long run, they can easily  outperform the other mutual funds.

Small cap mutual funds invest in firms with a market value of less than 5000 crores. These companies are not among the top 250 and are almost unheard of in our daily lives. Small Cap equities must account for 65% of the top Small cap mutual fund portfolio, according to SEBI requirements.

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Things to consider before investing in small cap mutual funds

Small-cap mutual funds offer high potential for exceptional returns. There are numerous factors to consider before investing in small mutual funds. Here are some crucial points to keep in mind before investing in small-cap mutual funds.

  1. Investment Goals

The NAV (net asset value) of a small-cap fund is particularly sensitive to its underlying benchmark. As a result, many small-cap funds experience losses when the market is not in good shape. It does, however, provide a good long-term return. 

As a result, a small-cap fund should only be considered if you can commit to investing for at least 5–7 years. In the short term, you should avoid these funds because frequent redemptions can result in significant losses.

  1. Risk Tolerance

Small Cap Mutual funds are often associated with greater returns when compared to other forms of equity mutual funds, although they can be severely impacted by market volatility. Most businesses are unable to survive these changes. Investors with a high risk tolerance might consider this fund.

  1. Expense Ratio

The amount that the AMC charges to manage your investments is shown by the expense ratio. In general, small-cap funds have greater expense ratios than other equity funds. As per SEBI norms, the expense ratio of a fund can’t be higher than 2.50%. A reduced ratio of expenses is consistently positive.

  1. Fund Manager

The performance of a mutual fund has a connection to its fund managers, who purchase and sell shares depending on their research and analysis. Examining managers’ qualifications and track records is thus a wise decision.

  1. Regular Plan vs Direct Plan

Direct plans, as opposed to regular plans, are offered directly by AMCs. Because there is no involvement by a third party, the direct option has a lower expense ratio. This plan also has a greater NAV because there are no additional charges.

5 Best Small Cap Mutual Funds in India

Best Small Cap Mutual FundsAUM (Asset Under Management)
Nippon India Small Cap Fund₹28,778.87 Cr
Axis Small Cap Fund₹13,182.54 Cr
SBI Small Cap Fund₹17,572.16 Cr
Kotak Small Cap Fund₹17,333.47 Cr
HDFC Small Cap Fund₹9882.71 Cr

Nippon India Small Cap Funds

Nippon Life India Asset Management Limited offers an equity mutual fund scheme called Nippon India Small Cap Mutual Fund Direct-Growth. 

The program was introduced in 2010. Currently, Tejas Sheth, Akshay Sharma, and fund manager Samir Rachh are in charge of this fund. With an AUM of ₹28,778.87 Cr, it is the best-performing small-cap mutual fund with the greatest AUM.

Furthermore, the cost ratio of this fund is 0.80%, which is among the highest among small-cap funds. This fund’s minimum lump sum investment is Rs 5,000,000, with a subsequent investment of Rs 1,000. And the minimum SIP amount for this fund is Rs 100.

Advanced Ratios:

P/E (price-to-earnings)22.64
P/B (price-to-book)3.05
Alpha Ratio10.12
Beta Ratio0.86
Sharpe Ratio2.19
Sortino Ratio4.05

Axis Small Cap Fund

Axis Small Cap Growth Direct Plan has returned 29.3% in the last year, 38.5% in the previous three years, 24.3% in the previous five years, and 24.5% since its commencement. 

It has a total asset value of 13,182.54 Cr. Shreyash Devalkar and Vinayak Jayanath currently handle this fund.

This Small cap mutual fund offers a low expense ratio of 0.55%, which is unusual for a small-cap fund. This fund’s minimum lump sum investment is Rs 500, and its minimum SIP amount is Rs 100.

Advanced Ratios:

P/E (price-to-earnings)27.12
P/B (price-to-book)4.20
Alpha Ratio9.60
Beta Ratio0.63
Sharpe Ratio2.28
Sortino Ratio4.02

SBI Small Cap Fund

    Since its debut on January 2, 2013, the SBI Small Cap Mutual Fund Direct-Growth has generated an average annual return of 25.37%. R. Srinivasan and Mohit Jain now handle this fund. 

    The cost ratio of the fund is 0.72%. This fund’s minimum SIP amount is $500, and it currently prohibits lump sum investments.

    Advanced Ratios: 

    P/E (price-to-earnings)27.07
    P/B (price-to-book)3.80
    Alpha Ratio6.78
    Beta Ratio0.73
    Sharpe Ratio2.01
    Sortino Ratio4.01

    Kotak Small Cap Fund

    Kotak Small Cap Mutual Fund was established in 2013. Since its launch, the fund has achieved an average annual return of 25.37%. This fund’s current fund managers are Pankaj Tibrewal and Arjun Khanna. 

    This fund’s AUM is 9882.71 Cr. This product requires a minimum SIP and a lump sum commitment of $500. This fund’s expense ratio is 0.45%, which is lower than that of Axis Small Cap Mutual Fund.

    Advanced Ratios:

    P/E (price-to-earnings)27.30
    P/B (price-to-book)3.98
    Alpha Ratio9.45
    Beta Ratio0.79
    Sharpe Ratio2.12
    Sortino Ratio4.10

    HDFC Small Cap Fund

    The HDFC Small Cap Mutual Fund is categorised as an equity mutual fund. Over the last three years, this fund has produced 44.57% analysed returns; over the last five years, it has produced 17.97%. Its expense ratio of 0.79% is fairly similar to that of Nippon. Chirag Setalvad Dhruv Muchhal is the fund manager at the moment. To start investing with HDFC Small Cap Fund via lump payment, or SIP, a minimum investment of $100 is needed.

    Advanced Ratios: 

    P/E (price-to-earnings)14.46
    P/B (price-to-book)2.32
    Alpha Ratio7.16
    Beta Ratio0.79
    Sharpe Ratio2.01
    Sortino Ratio3.82

    Conclusion

    To sum up, there are many opportunities in the world of investments, and small-cap mutual funds in India for 2023 are undoubtedly among them. These five thoughtfully selected small-cap mutual funds have proven they have the capacity to increase your wealth over time and offer solid returns. 

    But it’s necessary to keep in mind that investing is never risk-free and that past performance does not guarantee future success.

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    DISCLAIMER: Online Trading Institute is providing courses content and any related materials (including newsletters, blog post, videos, social media and other communications) for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments.