Small cap funds adhere to the adage “catch them young.” These funds have a modest market capitalization of less than Rs. 5000 crores. In other words, such funds, if chosen judiciously, can register high growth rates, higher than large cap and mid cap mutual funds.
However, small caps are also prone to the highest amount of risk, compared to these funds. It depends on the asset fund management company to go for the right ‘potential market leaders’ by selecting stocks that have the capacity to surge ahead, in spite of market fluctuations along the road ahead.
Here are the top 5 small cap mutual funds for 2017
- DSP BlackRock Micro Cap Fund – Regular Plan – Launched on June 14, 2007, the fund has returned 18.92 percent per annum since launch. It has returned 30.40 percent, 44.57 percent and 31.85 percent per annum in the past 5, 3 and 1 year. The asset fund size of DSP BlackRock Micro Cap is Rs.4323 crore, with an expense ratio of 2.53 percent. Though small cap funds took a beating in 2008, this is one fund that has delivered solidly across market cycles. Close to 75 to 85 percent of the portfolio is invested in small caps with around 25 to 15 percent in mid caps. This is one rare fund that has moved past the benchmark in every single year, since 2008, and stayed ahead of its peers in every year, but 2012.
- Reliance Small Cap Fund – Formed on January 1, 2013, this fund has returned 30.64 percent per annum since its launch. In the past 3 years, it has delivered 40.42 percent per annum, while in the past 1 year, it gave 26.48 percent returns. The fund invests a minimum of 65 percent of its portfolio in small cap companies. Reliance Small Cap adopts a mid-path, not veering towards growth stocks or value stocks. It primarily looks for solid business models, available at a reasonable price. Some of the parameters that the fund looks for are solid management, business sustainability, scale and realistic valuations.
- Franklin India Smaller Companies Fund – The fund has delivered 29.65 percent per annum since its launch, on January 1, 2013. It has delivered 28.31 percent in the past 1 year and 38.34 percent per annum in the past 3 years. The fund manager looks out for factors like companies with the ability to compound their earnings at high rates, good return on capital, sturdy management and the ability to generate free cash flows. The fund may have taken a beating in the 2008 financial crisis but emerged formidable in the past two bearish cycles of 2011 and 2013.
- SBI Small & Midcap Fund – The fund was formed on January 1, 2013 and has delivered 31.77 percent per annum since inception. In the past 1 year, it delivered 22.24 percent and in the past 3 years, it has given 42.43 percent returns per annum. The asset size is Rs.719 crore and the expense ratio is 2.39 percent. The fund keeps almost 66 percent of portfolio in small caps with the remaining in mid caps; there is no allocation in large caps. The top sectors in the fund are mostly chemicals, FMCG and services.
- Kotak Emerging Equity – Formed on January 1, 2013, this fund has delivered 23.51 percent per annum since inception. Since the past one year, it has delivered 31.78 percent returns and in the past three years, it has given 37.95 percent returns per annum. The top three sectors, the fund invests in are financial, engineering and chemicals. The asset fund size is Rs. 1218 crore and the expense ratio is 2.18 percent. Though the fund took a beating in 2008, it improved since 2010. It follows a growth style of investing, holding on to stocks for long term.