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5 Best Small-Cap Mutual Funds to Invest in 2020

As compared to large-cap and mid-cap mutual funds, small-cap mutual funds have higher returns potential. If you are an aggressive long-term investor, 2020 can be a great year to invest in small-cap funds. Check out this post to know 5 of the top small-cap funds you can consider for your portfolio.

Equity mutual funds are widely popular for their long-term growth potential. When categorised based on the market capitalisation of companies in which equity funds invest, small-caps have a higher potential as compared to large-cap and mid-cap funds. But they also come with the highest level of risk.

These funds invest your money in smaller, emerging companies that have a lot of room for growth in the future. This makes small-caps a highly promising investment option. But it is also true that a lot of smaller companies fail or are unable to grow as expected. This is the primary reason why small-cap funds are also the riskiest.

But if you are an aggressive long-term investor, small-cap mutual funds can be an excellent choice. Especially in 2020 where the BSE Small-cap 100 TRI Index is already witnessing significant growth for the past 3-months, this can be the year when small-caps outperform larger market caps.

To help you pick the best small-cap funds, we have listed 5 of the top options that you can consider for your portfolio

Axis Small-Cap Fund-Growth-Direct

If a top-performing small-cap mutual fund from a reputed fund house is what you are looking for, Axis Small-Cap Fund (G) (D) can be the way to go. With 1-year returns of as high as 33.63%, the scheme can be an ideal choice for long-term investors.

The scheme was launched in 2013 and currently has around 84% of its portfolio invested in equity. Out of this, about 67% of the portfolio is invested in small-caps, and close to 14.30% is in mid-caps. Once the small-caps start performing, it is expected that the fund manager will increase the allocation towards quality small-cap stocks.

It is also worth noting that this scheme currently stands at the 1st spot on CRISIL’s list of Best Small-Cap Mutual Funds for 2020. Even the Axis Mid-Cap Mutual Fund and Axis Large-Cap Mutual Fund hold the first spot in their respective categories. This makes Axis one of the top fund houses in the country.

Performance

Scheme Name Current NAV (As on 25/02/2020) Current AUM Last 1-Year Last 3-Years Last 5-Years Since Inception
Axis Smallcap Fund- (G) (D) 34.73 Rs. 2,084.44 crores 33.63% 14.55% 12.51% 22.07%

Nippon India Small-Cap Fund-Growth-Direct

There are not many small-cap mutual funds that have large-cap stocks in their portfolio. The Nippon India Small-Cap Fund (G)(D) currently has a 95.81% equity holding. It is divided into small-caps (74.29%), mid-caps (9.06%), and large-caps (3.29%), accounting for a total of 114 stocks. This is significantly higher than the small-cap category average of holding 61.27 stocks in the portfolio.

But the consistently high returns generated by the scheme ensure that the fund managers have selected quality stocks from across market caps. The investment is spread across sectors such as Industrials, Basic Materials, Consumer Cyclical, Financial Services, Consumer Defensive, Technology, and more.

However, the scheme has a high expense ratio of 2.14%. The industry average of expense ratio for the small-cap category currently stands at 1.85%. But the combination of small-cap, mid-cap and large-cap still make Nippon India Small-Cap Fund a smart choice.

Performance

Scheme Name Current NAV (As on 25/02/2020) Current AUM Last 1-Year Last 3-Years Last 5-Years Since Inception
Nippon India Smallcap Fund- (G) (D) 41.30 Rs. 9,063.88 crores 12.07% 8.48% 11.02 16.18%

Kotak Small-Cap Fund-Growth-Direct

Launched in 2005, the Kotak Small-Cap Fund (G)(D) is one of the oldest small-cap schemes in India. The scheme has been able to continually outperform its BSE TRI Sensex benchmark, helping investors generate handsome returns with every passing year

Just like the Nippon India scheme listed above, the Kotak Small-Cap Fund also has large-cap exposure. Its portfolio currently consists of 97.38% equity investments, out of which 72.97% is in small-caps, 19.15% is invested in mid-caps, and 3.66% is in quality large-cap stocks to add more stability to the portfolio.

Also, the scheme is one of the few to have a lower number of stocks than the category average. While the category stock average in small-caps is 61.27, Kotak Small-Cap Fund has 60 stocks. But this too has a higher expense ratio at 2.3%

Performance

Scheme Name Current NAV (As on 25/02/2020) Current AUM Last 1-Year Last 3-Years Last 5-Years Since Inception
Kotak Smallcap Fund- (G) (D) 78.74 Rs. 1,592.02 crores 20.95% 6.23% 8.89% 14.63%

HDFC Small-Cap Fund-Growth-Direct

The HDFC Small-Cap Fund (G)(D) not only has large-cap stocks in its portfolio but also has some investments in debt and related securities. While most small-cap funds invest in TREPS (Tri-Party Repo), apart from equity, the HDFC Small-Cap Fund has equity, debt, and other securities like TREPS. The debt investments are in CDs, T-Bills, NCD, Bons, and CPs.

This shows that the fund manager is not as aggressive with small-caps as other schemes on this list. Nevertheless, this adds more stability to the portfolio. The scheme has around 88.39% of its portfolio invested in equity, 2.22% in debt, and 9.39% in other securities. Equity investment is further divided into small-caps (68.66%), mid-caps (13.14%), and large-caps (3.27%).

It has a total of 60 stocks in its portfolio and has been able to deliver decent returns over the years. But it is worth noting that it has the largest AUM of Rs. 9,872.22 crores as compared to other best small-cap funds on this list.

Performance

Scheme Name Current NAV (As on 25/02/2020) Current AUM Last 1-Year Last 3-Years Last 5-Years Since Inception
HDFC Smallcap Fund- (G) (D 39.10 Rs. 9,872.22 crores -3.63% 7.44% 8.87% 12.14%

DSP Small Cap Fund- Growth-Direct

DSP Blackrock Mutual Fund was renamed DSP Mutual Funds in 2018 when the DSP Group purchased the remaining 40% stake in the DSP Blackrock joint venture. The DSP Group now has its joint venture arrangement with the reputed Merrill Lynch Investment Managers.

The DSP Small-Cap Fund (G)(D) has everything an investor could ask for- stellar performance consistently, lower expense ratio, and a reputed fund house. While the returns are not as high as other schemes on this list, the consistency in the performance and expense ratio of only 1.13% makes it an excellent small-cap fund.

Talking about the portfolio, the scheme currently has 93.82% of its investments in equity and related instruments. Around 81% of this is in the small-cap companies, and the remaining is invested in quality mid-cap stocks. The biggest allocations are in sectors like Chemicals (11.8%), Industrial products (10.7%), Textile Products (9.9%), and Pharmaceuticals (9.6%).

Performance

Scheme Name Current NAV (As on 25/02/2020) Current AUM Last 1-Year Last 3-Years Last 5-Years Since Inception
DSP Smallcap Fund- (G) (D 60.18 Rs. 5,264.19 crores 15.1% 2.4% 9.5% 18.7%

Investing in Top Small-Cap Mutual Funds

If you are sure that you’d like to invest in small-cap funds, these are some of the top options that you can consider. If you are new to small-cap funds, start investing with a small amount and build your way up as you gain more knowledge and experience.

A lot of new investors prefer starting with SIPs in small-cap funds. You can consider the same if you do not want to risk a lump sum amount.