Any investor who bought smallcap equity mutual funds at the peak of Covid market crash will be quietly laughing their way to the bank. Because the average returns of small cap oriented mutual funds in the last one year period has been 103 per cent, with the poorest smallcap fund delivering atleast 76 per cent.
In March 2020, smallcaps were the worst hit. So, it is probably fitting that these funds betting 65 per cent or more in smallcaps would fall more than the market. It was a bloodbath. With funds having lost 30-40 per cent in 30 days. But as markets limped back, and the realization dawned that lockdowns cannot be a permanent solution, smallcaps immediately did not recover fully. The rally was first led by largecaps, and then smallcaps joined the party as risk-on sentiment caught on. A year down the line, even the staunchest smallcap fund investor would not have thought of these out-sized gains.
Small cap mutual funds that have adopted a prudent risk management and optimised margin of safety and diversification across sectors & stocks have shown better promise historically.
For the last one year period, Quant Small Cap Fund is the biggest wealth creator with 175 per cent NAV rise. But given that it’s a small asset fund, it is likely many smallcap investors don’t have it in their portfolio.
Kotak Small Cap Fund, with over Rs 3,000 crore in AUM, is definitely present across many investor portfolios. The long standing scheme has clocked 125 per cent. Both Quant Small Cap and Kotak Small Cap are in fact the only 2 funds in this category that have beaten their benchmark in this period.
Nippon India Small Cap has generated 116 per cent gain in last one year.
Passive products such as Motilal Oswal Nifty Smallcap 250 are also among chart toppers with a phenomenal 114 per cent gain in NAV.
There are atleast 9 more smallcap funds in the 100 per cent gainers. These are Principal Small Cap Fund, HSBC Small Cap Equity Fund, HDFC Small Cap Fund, BOI AXA Small Cap Fund, DSP Small Cap Fund, ICICI Pru Small Cap Fund, Canara Robeco Small Cap Fund, Aditya Birla Sun Life Smallcap Fund and Edelweiss Small Cap Fund.
Axis Small Cap Fund turns out to be the poorest performer with 76 per cent gain in one year, which interestingly would make it better than many top performers in other equity fund categories.
|Fund Name||3 Mth Ret (%)||6 Mth Ret (%)||1 Yr Ret (%)|
|Quant Small Cap Fund||18.54||40.39||175.9|
|Kotak Small Cap Fund||22.12||50.61||124.71|
|Nippon India Small Cap Fund||18.25||40.75||116.14|
|Motilal Oswal Nifty Smallcap 250 Index Fund||15.17||39.51||113.65|
|Edelweiss Small Cap Fund||18.84||43.29||109.22|
|Aditya Birla Sun Life Small Cap Fund||15.13||41.06||107.06|
|Canara Robeco Small Cap Fund||14.67||34.28||105.14|
|ICICI Prudential Smallcap Fund||15.96||42.71||105.11|
|DSP Small Cap Fund||11.75||33.68||102.53|
|BOI AXA Small Cap Fund||14.36||35.54||102.25|
What they do
Small cap equity mutual funds invest in the smallest companies in India. These companies are beyond the top 250 companies. While they can deliver fantastic returns, these small cap stocks can be highly volatile.
Holding periods for small cap funds have to be more than 5 years, with 7 years being the ideal investment horizon. Of course time of entry and exit matter.
You can benefit from investing early in small cap companies. A larger portfolio is better than a concentrated one as many small cap stocks are unable to become mid cap companies, a progression which is necessary for wealth creation.
It is better to adopt the SIP route for small cap mutual fund investments. Lump sum route only makes sense during market crashes.