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5 Small Cap Fund for Investment 2023 – 50% Returns in 3 Years

Small Cap Fund is a popular investment option in India. Small-cap funds come with higher risks, including liquidity risk, business risk, and market risk. However, it is observed that small-cap funds have given magnificent returns to investors in the past. You can get more than 50% returns if you stay invested in small-cap funds for 3 years or more. If you are an investor with a high-risk tolerance with a long-term investment horizon this post is for you. In this post, I will share 5 Small Cap Funds that have given 50% returns in the past 3 years. These funds are likely to perform well in the future.  

What is Small Cap Fund?

Small Cap Funds are a fund that invests money in small-cap stocks/companies. Small-cap companies have a smaller market capitalization typically less than ₹ 5000 Crore. Small Cap Funds are considered to have higher growth potential but also higher volatility and risk compared to larger companies. 

How to Select Small-Cap Funds?

When you are planning to invest your money in small-cap funds you should evaluate the following. 

#1 Fund Performance History 

You need to check the fund’s past performance history of the fund before investing. Check for the past 5 years’ fund performance. Also, check the fund’s ability to generate returns. Select the fund that has generated very good returns for the investors in the past surpassing benchmark and peers.

#2 Fund Manager Expereince 

The fund manager plays a crucial role when it comes to mutual funds. You should check the fund manager’s experience, qualifications, and track record before investing. Evaluate fund manager investment style and stock selection process before investing.

#3 Fund Size & Liquidity

You should also check fund size and liquidity before investing. There is no thumb rule for the fund size, however, you should go for a bigger fund size while investing.

#4 Direct Fund over Regular Fund

Direct Fund is offered by the AMC directly without the involvement of agents, third parties, brokers, and distributors. This means direct fund offers higher NAV compared to a regular plan. You should opt for a direct plan over a regular plan.

#5 Expense Ratio

The expense ratio of the fund is an important point to consider while investing. The expense ratio measures % of fund assets used towards administrative, legal, and other expenses including fees of the fund manager. The fund expense ratio should be lower. A lower expense ratio gives a positive impact on the fund performance. 

#6 Fund Rating

Fund rating is also important when selecting a fund for investment. CRISIL and Value Research are agencies that give fund ratings. You should select a fund rated 3 stars and above for investment. 

#7 Fund House Reputation

You should check the reputation and credibility of the fund house managing the small-cap fund. Invest in a fund with a strong track record and good governance practice. 

#8 Fund Portfolio 

Check fund portfolio and investment holding in terms of small-cap stocks. This will help you to understand the type of diversification and concentration across stocks.

#9 Fund Expenses 

Make sure to check for other expenses such as exit load or transaction fees before making an investment. This additional investment impacts on overall returns of your investment.

small cap funds investment

5 Small Cap Fund for Investment 2023 – 50% Returns in 3 Years

#1 Nippon India Small Cap Fund – Direct Plan-Growth

Nippon India Small Cap Fund Direct Plan is one of the top-performing small-cap funds for investment. This fund has generated 50.35% returns for investors in the last 3 years. This fund has 96.79% investment in domestic equities of which 8.02% is in Large Cap stocks, 6.82% is in Mid Cap stocks, and 63.09% in Small Cap stocks. This fund enjoys a 4 Star CRISIL Rating. Expense Ratio of this fund is 0.82%. It is a well-diversified fund for investment. 

  • Expense Ratio: 0.82%
  • AUM: ₹26293 Cr
  • Minimum Investment: ₹5000
  • Minimum SIP Investment: ₹1000
  • Annualized 3-Year Returns: 50.35%
  • Annualized 5-Year Returns: 18.28%

#2 SBI Small Cap Fund – Direct Plan-Growth

SBI Small Cap Fund Direct Plan-Growth is the next fund for investment. This fund has 85.06% investment in domestic equities of which 0.76% is in Large Cap stocks, 8.17% is in Mid Cap stocks, and 51.18% in Small Cap stocks. This fund is managed by an experienced fund manager. The expense ratio of this fund is 0.73%. This fund has generated 40.69% returns for the investors in past 3 years.

  • Expense Ratio: 0.73%
  • AUM: ₹16592 Cr
  • Minimum Investment: ₹5000
  • Minimum SIP Investment: ₹1000
  • Annualized 3-Year Returns: 40.69%
  • Annualized 5-Year Returns: 16.60%

#3 Kotak Small Cap Fund – Direct Plan-Growth

Kotak Small Cap Fund Direct Plan Growth is the next fund recommended for investment. Kotak Small Cap Fund has generated 46.88% returns for the investor in the past 3 years. This fund has 95.41% investment in domestic equities of which 3.35% is in Large Cap stocks, 16.81% is in Mid Cap stocks, and 62.62% in Small Cap stocks. CRISIL has given a 3-star rating to this fund.

  • Expense Ratio: 0.55%
  • AUM: ₹9230 Cr
  • Minimum Investment: ₹5000
  • Minimum SIP Investment: ₹1000
  • Annualized 3-Year Returns: 46.88%
  • Annualized 5-Year Returns: 17.57%

#4 DSP Small Cap Fund – Direct Plan-Growth

DSP Small Cap Fund Direct Plan-Growth is the next top-performing fund. This fund has generated 42% annualized returns for the investors in past 3 years. This fund has 95.3% investment in domestic equities of which, 4.14% is in Mid Cap stocks, and 68.74% in Small Cap stocks. The expense ratio of this fund is slightly higher.

  • Expense Ratio: 0.94%
  • AUM: ₹9408 Cr
  • Minimum Investment: ₹5000
  • Minimum SIP Investment: ₹500
  • Annualized 3-Year Returns: 42.01%
  • Annualized 5-Year Returns: 13.79%

#5 HDFC Small Cap Fund – Direct Plan-Growth

HDFC Small Cap Fund Direct Plan is one of the best small-cap funds for investment. HDFC Small Cap Fund Direct Plan has generated 48.10% returns for investors in the last 3 years. This fund has 91.52% investment in domestic equities of which 4.36% is in Large Cap stocks, 5.28% is in Mid Cap stocks, and 71.83% in Small Cap stocks. The expense ratio of this fund is 0.79%. CRISIL has given a 4-star rating to this fund.

  • Expense Ratio: 0.79%
  • AUM: ₹15857 Cr
  • Minimum Investment: ₹5000
  • Minimum SIP Investment: ₹1000
  • Annualized 3-Year Returns: 48.10%
  • Annualized 5-Year Returns: 14.70%

Note – Returns and other data are as on 17th May 2023.

Investors’ financial situations, risk tolerances, and investment goals vary from one to the next. It is therefore important for individuals to carefully assess their own circumstances, consult with a financial advisor, and consider how small-cap funds fit into their overall investment strategy before investing in small-cap funds.

Shitanshu Kapadia
Shitanshu Kapadiahttp://moneyexcel.com/
Hi, I am Shitanshu founder of moneyexcel.com. I am engaged in blogging & Digital Marketing for 10 years. The purpose of this blog is to share my experience, knowledge and help people in managing money. Please note that the views expressed on this Blog are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment advice or legal opinion. We do not offer any stock tips, investment, insurance or finance product related advice. Please consult a qualified financial planner and do your own due diligence before making any investment decision.
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