Small caps are risky, if not the riskiest, among equity mutual funds. But then, they also give you the highest rate of returns. Investing in small caps is like investing in future leaders, when they are kids. The returns in small caps are steep, with some of the toppers giving more than 40 percent annualized returns.
Here are the top 5 small cap funds – Please note that the performance data is based on September 2016, and is subject to change.
1. Franklin India Smaller Companies Fund – The fund has delivered 44.16, 29.75 and 16.50 percent per annum in 3, 5 and 10 years period. Franklin India Small Companies Fund was launched on January 13, 2006. The returns since launch has been 15.70 percent per annum. The asset size as on August 31, 2016, is Rs. 3,735 crore, the expense ratio is 2.43 percent. The top five sectors, the fund invests in are financial, engineering, services, construction and chemicals. The fund managers are Hari Shyamsunder, R. Janakiraman and Srikesh Nair.
Despite a lean patch in 2006-2008, the fund has made a phenomenal comeback and has beaten both the benchmark and category average by huge margins. The fund managers look for companies that can give good returns on capital and have solid management. Businesses with restricted entry barriers, poor return on capital and inability to generate adequate cash flows over a period of time, are avoided. The fund is suited for investors who are looking for a relatively smooth sailing with small-caps.
2. DSP BlackRock Micro Cap Fund – The fund has delivered 53.30 percent per annum in a 3-year period and 28.72 percent per annum in a 5-year period. The fund was launched on June 14, 2007 and since its launch, has given 19.49 percent per annum. The AUM size is Rs. 3650 crore (as on August 31, 2016) and the expense ratio is 2.53 percent. The top five sectors, the fund invests in are chemicals, textiles, engineering and construction. The fund managers are Jay Kothari and Vinit Sambre.
DSP BlackRock Microcap Fund is a fantastic small cap fund that has performed consistently in both market cycles. The fund likes to take bold call but with though research. 75 to 85 percent of the portfolio is invested in small caps with 15-20 percent in mid-caps. In fact, this is a rare small cap fund which has beaten benchmark every time since 2008. The only year, it performed behind its peers, was 2012.
3. SBI Magnum Midcap Fund – Though the name has a midcap mention, it is actually a small-cap fund. It has returned 42.77 percent, 27.23 percent and 14.42 percent per annum in 3, 5 and 10-year period. The fund was launched on March 29, 2005 and the returns since launch, has been 18.59 percent per annum. The asset size is Rs. 2,623 crores (as on August 31, 2016) with the expense ratio of 2.07 percent. The top five sectors it invests in are financial, healthcare, chemicals, engineering and construction.
This is one fund that has grown phenomenally over the years, especially in the last three years. The fund looks out to invest in companies in sectors that show rapid growth than its peers, high scalability, robust management and regular tax payouts. The fund manager is Sohini Adani, who has been with the fund since 2010.
4. Reliance Small Cap Fund – The fund has given 49.85 percent and 27.45 percent per annum in 3 and 5 years respectively. It was launched in September 16, 2016 and has given 20.15 percent per annum since inception. The asset size is Rs.2428 crore (as on August 31, 2016) and the expense ratio is 2.08 percent. The top five sectors, the fund invests in are chemicals, financial, FMCG, engineering and construction. The fund manager is Sunil B. Singhania.
The fund has performed exceptionally well in the past five years, beating both the benchmark and its peers by a substantial margin. The fund invests a minimum of 65 percent of its portfolio is small caps. The stocks picks are based on reasonable valuations, solid management, scale and sustainability. It tackled the bear markets of 2011 and 2013 and gave great returns, compared to most funds in the small cap category.
5. Canara Robeco Emerging Equities Fund – The fund was launched on March 11, 2005 and has given 46.04 percent, 27.01 percent and 17.30 percent per annum returns in the 3, 5 and 10-year period. The return since launch has been 18.49 percent per annum. The asset size is Rs.1, 271 crore and the expense ratio is 2.46 percent. The top five sectors, the fund invests in are construction, financial, chemicals, engineering, services and energy. The fund managers are Kartik Mehta and Ravi Gopalakrishnan.
While the fund had a tough time between 2006 and 2008, it pulled its socks and became one of the top five best small cap funds over a period of time. In the past seven years, it has given returns that beat category average, every time. The fund has its focus clearly on future market leaders