scorecardresearchWhy should you have at least one small cap fund in your mutual fund portfolio?

Why should you have at least one small cap fund in your mutual fund portfolio?

Updated: 01 Oct 2022, 10:30 AM IST
TL;DR.
Diversification of investments is important to mitigate the risk while aiming to earn returns on our investments. Including small-cap funds in your investment portfolio means taking controlled risks while also accumulating the much-desired corpus.
Small-cap funds are no doubt volatile but having at least one in your portfolio can help you achieve your financial goals quickly.

Small-cap funds are no doubt volatile but having at least one in your portfolio can help you achieve your financial goals quickly.

The market volatility has brought forth more than how the stock markets respond to macro factors and geopolitical tensions. More than that, it has brought to light some underrated funds that not only bore the heat but also performed better than the market indices. A comparison of returns from other funds of varied market capitalization highlights how small-cap funds have outperformed them in the past five years. This is despite the market crashing down in March 2020 due to Covid-19 and subsequent market slowdowns to date.

Take, for example, the Axis Small Cap Fund which has earned 21.46 per cent returns over the past five years. Since its inception, investors have earned roughly 24.91per cent returns from this fund. This is way higher than the category average of 20.69 per cent returns in the small-cap category. 

Another fund is the Nippon India Small Cap fund in this category. With a whopping 19.56 per cent returns that beat the returns of almost all funds in the mutual fund space, investors cannot stop sharing how a persistent investment made at a stretch can help accumulate the necessary corpus.

Comparing returns of these funds with funds of the large and mid-cap category underscore the importance of having at least one of these in your investment portfolio.

Name of the fundFund category

Five-year returns

(in %)

Name of the fundFund category

Five-year returns

(in %)

Name of the fundFund category

Five-year returns

(in %)

Axis Small Cap Fund Small Cap21.46Canara Robeco Bluechip Equity FundLarge Cap15.01PGIM India Midcap Opportunities FundMid Cap21.20
Nippon India Small Cap Fund Small Cap19.56Axis Bluechip FundLarge Cap14.09Axis Midcap FundMid Cap18.62
Kotak Small Cap Fund Small Cap19.42UTI Mastershare Unit SchemeLarge Cap13.04Invesco India Mid Cap FundMid Cap16.22

The expense ratio in small-cap funds is not too high, thus, allowing you to avail greater returns at lesser costs.

Mutual fund returns

A comparison of returns on similar investments helps us understand how small-cap mutual funds can make a great investment provided one is ready to invest consistently for a prolonged period.

Monthly Investment 

(in Rs)

Investment tenure 

(in years)

Name of the fund

Five-year returns

(in %)

Corpus accumulated 

 

(in Rs)

Name of the fund

Five-year returns

(in %)

Corpus accumulated

 

(in Rs)

Name of the fund

Five-year returns

(in %)

Corpus accumulated

 

(in Rs)

10,0005Axis Small Cap Fund21.4610,79,475Canara Robeco Bluechip Equity Fund15.018,97,069PGIM India Midcap Opportunities Fund21.2010,71,305
10,0005Nippon India Small Cap Fund19.5610,21,442Axis Bluechip Fund14.098,74,206Axis Midcap Fund18.629,94,119
10,0005Kotak Small Cap Fund19.4210,17,316UTI Mastershare Unit Scheme13.048,48,976Invesco India Mid Cap Fund16.229,28,262

Why should you invest?

If you think that regular savings are enough, think again. Merely saving your money in your bank deposits will not garner you the much-needed corpus to take care of your future needs. Investing will do. While staying invested is the key to earning considerable returns, small-cap funds earning high returns eases one’s journey toward a secure financial future.

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First Published: 01 Oct 2022, 10:30 AM IST