Many analysts are claiming that this is the right time to invest in the small-cap sector as they are more likely to grow once inflation subsides and interest rates rebound to normal, thus, making way for them to grow. True that large caps lend more stability, but they are surely not quick to surge ahead unlike their small-cap counterparts that would grow at an exponential speed once the market assumes a bullish outlook.
Small-cap funds have performed well in the past with some of them surpassing their investors’ expectations. Take, for example, the Canara Robeco Small Cap Fundwhich delivered a whopping 28.65 per cent annual returns and 131.4 per cent absolute returns since its inception. This means that investing ₹10,000 every month in this fund through SIPs can help you earn ₹1.19 lakhs today. Investors who had started investing ₹10,000 every month three years back in this fund have garnered more than ₹6 lakhs corpus.
An overview of this fund reveals that 92.75 per cent of its money is put into domestic equities of which 1.83 per cent is in large-cap stocks, 12.45 per cent in mid-cap stocks with the remaining 59.51 per cent being allocated to small-cap stocks.
Volatility is synonymous with this fund as a large part of the stocks are from the small-cap sector. This means that you must be ready to take in your stride the insecurity and instability that come with the extreme up and down movement of these stocks.
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Fund performance
Many investors inquire why they must invest in this fund more than any other. If you are looking exceptionally for returns and are willing to wait for a long period, then the small-cap sector is definitely one for you.
A comparative analysis of most income funds in this category underscores the exceptionally high returns that investors have earned by investing in it.
Staying invested for a prolonged period yields returns exceeding most other equity mutual funds. This you can achieve by investing in this fund through systematic investment plans over a period ranging from 10 to 15 years.
| Name of the fund | One-year returns | Two-year returns | Three-year returns |
| BOI AXA Small Cap Fund | 5.68% | 52.82% | 32.10% |
| Kotak Small Cap Fund | 8.51% | 57.67% | 29.39% |
| Nippon India Small Cap Fund | 10.19% | 55.32% | 26.11% |
Canara Robeco Small Cap Fund
Launched on February 15, 2019, the current assets under management (AUM) amount to ₹2559.96 crores. The risk factor is very high considering how this fund invests its money in options that rely on small businesses with an equal opportunity to rise or fall. This medium-sized debt fund charges a 0.40 per cent expense ratio.
The fund is benchmarked against the NIFTY Smallcap 250 Total Return Index and can be bought to earn long-term returns. Considering the low expense ratio charged by this fund, the returns from this long-duration fund are quite high compared to most other funds in this category.
The minimum amount you can invest in this fund is ₹5000 in a lump sum while you can make an added minimum investment of ₹1000 in a lump sum in this fund. The minimum investment you can make through SIPs is ₹1000.
This fund attracts an exit load of one per cent for exits within a year from the date of allotment of units. However, for exits beyond a year from the date of allotment of units, the exit load is “Nil”.
As per the guidelines stipulated by the Securities and Exchange Board of India (SEBI), investments in this fund come under the “Very High Risk” category. Keeping in mind, how the asset management company has been keen to serve its clients as per the global best practices, this fund has been awarded the “Five Stars” CRISIL Mutual Fund Ranking.
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Tax treatment
If the fund’s units are redeemed within three years of investment, the profits will be added to the investor’s income, which will be then taxed as per the rates mentioned in the Income Tax slab.
For investors who redeem the fund units after three years of staying invested, gains will be taxed at 20 per cent post indexation benefits.
Investors also earn dividends regularly from this fund. The dividend income from this fund will be added to the income of the investor who would then be taxed as per the respective tax slabs.
The fund house will deduct a TDS of 10 per cent on dividend income exceeding ₹5000 in any financial year.
Disclaimer: Mutual funds are subject to market risks. Please read the offer document carefully before investing. Also, the Securities and Exchange Board of India has stipulated the latest guidelines categorising this fund under the “Very High Risk” category.
