Best Small-Cap Funds To Invest in 2019

While talking about mutual funds we often come across words such as best small-cap funds, top mid-cap, and large-cap funds. However, very few of us understand their true meaning. Companies or corporates whose securities or market share value exceeds 500 crores are termed as stable and developed companies, and mutual fund targeting the scripts of such companies come under the category of large-cap funds. Going by the above meaning, companies whose market capitalization is less than 500 crores are the companies, which come under the category small-cap funds. As the name suggests, the market cap quantity (large or small) determines the cap of mutual funds.

Generally, institutional investors prefer the large-cap companies, because of its stability and low-risk nature. However, investors who are willing to bet on the upcoming and developing companies by taking substantial risk prefer the small-cap funds, which can be extremely profitable in the future. Small-cap funds target companies with high potential and in need of capital eg. IT companies, FMCG or service industry. Scripts of these companies are extremely volatile and highly risky, therefore fund managers have a tough job at hand.

Let us look at the best small-cap funds.

Best Small-cap Funds to Invest in 2018

1. HDFC Small-Cap Fund

An equity oriented fund, coming to birth in the first fiscal quarter of 2008, averaging a return of more than 22%.

2. L&T Emerging Business Fund

A relatively younger equity oriented fund, which started functioning in the year 2014, and has an average return of 22.54%.

3.  Reliance Small-cap Fund

Launched in 2010, this fund is a high-risk fund but has matched the same with a whopping average return of 25.37%.

4. SBI Small-cap Fund

Launched in September 2006, this fund is rated as high-risk fund and has provided an average return of 26.99%.

5. Franklin India Smaller Companies Fund

Launched at a similar time as SBI Small Cap Fund, however, this fund’s risk rating is moderately high-risk fund and has provided returns as follows.

6. IDBI Small-cap Fund

One of the youngest fund launched in June 2017, rated as moderately high-risk fund and has provided returns as follows.

7. Aditya Birla SL Small-cap Fund

Launched in the year 2007, this fund is moderately high-risk fund.

8. Kotak Small-cap Fund

Fund was launched in the year 2013 and has grown considerably since then.

9. DSP Small-cap Fund

A moderately risky fund launched in the year 2007, the fund has started to find its feet in the market.

10. ICICI Prudential Small-cap Fund

One of the low performing fund in the list, this fund risk rating is moderately high, launched in 2007.

Who Should Invest in Small-cap Funds?

Small-cap funds invest money in companies with low market capitalization. These companies have a huge growth potential. However, such companies may not fulfill that potential or their growth may stagnate. High volatility is the trademark of small-cap funds, but higher or extra-ordinary returns could attract potential investors. Therefore, risk-averse investors can diversify their portfolio by parking some funds in the small-cap category. However, retired personals or first-time investors should avoid this category due to its high volatility. Small Cap funds area good source of diversification. However, its high profit earning nature should not blind an investor.

Advantages of Best Small Cap Funds

Higher Returns:

It is s one of the prime advantages of small cap funds. The target companies in small-cap funds are the ones with untapped potential, and once their potential is on the rise, the fund may yield higher returns on investment.

Diversification:

It is an implied benefit of small-cap fund. Since all the mid cap or large cap funds provide you with decent returns, small-cap funds, keeping aside the risk factor, can really boost one’s return and complete the portfolio.

Unexplored route:

Institutional investors take the tried and tested route of stable income and low-risk investment. Small cap funds can offer investors to explore some new investment avenues with great potential.

Tips before Investing in Best Small Cap Funds

Patience:

It is imperative for any investor to be patient with their investment, more so with the one in small-cap funds. Generally, it has been noted that an investment in small-cap funds takes nearly 3-4 years to mature. Thus, it is important to have patience and trust in your investment before enjoying the benefits of it.

Past Performance:

It is a necessary factor to consider before investing in small-cap funds. Since the target companies being highly volatile in nature, a performance of any given day or month is not sufficient to judge the fund or to make an investment. Therefore, researching the history of returns at least for the past 5 years and comparing the same is essential.

Fund Manager:

A fund manager plays a crucial role while choosing the best small-cap funds. Small-cap funds are actively managed funds. Tapping the right companies, avoiding excessive risk by shuffling between small, mid or large cap funds, etc., are the functions of the fund manager. Therefore, you should consider researching the past performances of the fund manager before selecting the best small-cap funds.