Best Small-Cap Mutual Fund

Best Small Cap Mutual Fund in August 2022

Updated on
Best Small-Cap Mutual Fund 2022

If you are looking for the best small-cap mutual fund, look no further and you will find it in this post itself. It isn’t hard to find reliable small cap mutual funds but it will certainly take a decent amount of research and analysis.

Don’t worry, you don’t have to do it yourself since I have already done all the hard work to present you with the 5 best small cap mutual funds. You can simply read the post till the end for good clarity and by the end of the post, you should certainly find the best small cap mutual fund for yourself.

What is a Small Cap Mutual Fund?

A Small-Cap Mutual Fund is a Mutual Fund that invests a large part of the investment capital into small-cap equities. According to SEBI, small-cap mutual funds must invest at least 80% of total assets in small-cap companies.

Small-cap companies are those companies that rank below 250 in terms of market capitalization. In other words, companies that have a market capitalization of less than Rs. 500 crores are categorized as small-cap companies.

Read Also | Best ETF Funds to Invest in 2022 India.

Factors to consider while investing in Small Cap Fund Schemes

NAV

NAV stands for Net Asset Value and simply put, it’s the assets less its liabilities of an investment fund. Mutual funds with high NAV are considered to be bad and expensive. Hence, this is one of the most important factors when choosing a mutual fund.

Risk and Returns

When you invest in small cap mutual funds, it’s certainly a lot riskier than large and mid-cap funds. While small cap stocks have the potential of generating high returns, a slight market correction can have a drastic impact on these companies unlike large cap and mid cap companies that can easily acclimatize to negative market sentiments. Hence, when you invest in small cap mutual funds, you need to bear this in mind.

Expense Ratio

Another important factor to consider is the expense ratio. The expense ratio is the fee mutual fund companies charge on the total assets of a scheme. As per SEBI, the upper limit on the expense ratio shouldn’t be more than 2.50%. However, it’s always wise to look for a mutual fund scheme with a lower expense ratio since you don’t want the expense ratio to eat away your hard-earned returns.

Dividend Distribution Tax & Capital Gains Tax

The profit you make out of selling an investment is subjected to tax deduction. It’s important to get yourself familiar with the tax rules well in advance. Before the fund house pays you the dividend, it will deduct a 10% DDT or Dividend Distribution Tax.

Apart from this, investors must pay capital gains tax after they redeem the units of their small cap fund. An investment for less than a year is considered as Short Term Capital Gain (STCG), and an investment for more than a year is considered as Long Term Capital Gain (LTCG).

Short Term Capital Gain is taxed at 15%, while Long Term Capital Gain is taxed at 10%. However, it’s important to bear in mind that a Long Term Capital Gain of less than or up to Rs 1 lakh is not taxed. Only gain over Rs 1 lakh is subjected to taxation.

5 Best Small Cap Mutual Fund Schemes

I have listed the 5 best small cap mutual funds in India based on their One-Yearly returns, and fund size.

Kotak Small Cap Fund

Kotak Small Cap Fund has an annual return of 8.6% and a fund size of Rs 7,080 Cr. The fund has a NAV of Rs 178.07. When it comes to holding, the fund has 92.9% equity and 7.1% cash.

It has the maximum equity sector allocation in chemicals with 18.9% and Consumer Discretionary with 15.7%. Kotak Small Cap Fund has a P/E Ratio of 28.32 and an Expense ratio of 0.59%.

Axis Small Cap Fund

Axis Small Cap Fund comes with a yearly return of 8.9% and has a fund size of Rs 8,956 Cr. As far as the NAV goes, it’s Rs 65.83. If we look into the holding analysis, it comprises 79.4% equity, 20.8% debt, and -0.2% cash.

The fund has the maximum equity sector allocation in Chemicals and Construction. It has a P/E Ratio of 26.14 and an expense ratio of 0.49%.

Nippon India Small Cap Fund

Nippon India Small Cap Fund has a yearly return of 11.5% and a fund of 18,358 Cr. The fund has a NAV of Rs 92.12. As we analyzed the holding of the fund, it consists of 96.8% equity and 3.2% cash.

The fund has an equity sectoral allocation of 14.9% in Capital Goods and 13.3% in Chemicals. If we look at the P/E Ratio, it’s 21.08. However, the expense ratio is a bit high at 1.04%.

SBI Small Cap Fund

SBI Small Cap Fund has a fund size of 11,646 Cr. and an annual return of 9.5%. The fund has a current NAV of Rs 114.09. As far as the fund’s holding goes, it comprises 91.6% equity and 8.4% cash.

The fund has an equity allocation of 17.6% in Capital Goods and 16.5% in Consumer Discretionary. The fund has a P/E Ratio of 28.24 and an expense ratio of 0.76%.

Canara Robeco Small Cap Fund

Canara Robeco Small Cap Fund has a fund size of Rs 2,621 Cr. and has a high annual return of 18.9%. The fund has a NAV of Rs 24.98 currently. The fund’s holding consists of 91.0% equity and 9.0% cash.

As far as the equity sector allocation goes, the fund has an 18.1% allocation in the Financial sector, and 17.3% in services. The fund has a P/E Ratio of 2.98 and an expense ratio of 0.41%.

FAQs

What are the benefits of investing in Small Cap Funds?

Investing in Small Cap Funds has many salient benefits and here are some of them:
-> Growth potential is pretty high & can yield high returns.
-> Most of these funds are fairly priced.
-> Small cap funds have more space for diversification for better returns.

What are the best small cap mutual fund schemes?

Here are our top 5 small cap mutual fund schemes:
-> Kotak Small Cap Fund
-> Axis Small Cap Fund
-> Nippon India Small Cap Fund
-> SBI Small Cap Fund
-> Canara Robeco Small Cap Fund

The Bottom Line

Investing in a Small Cap Mutual Fund can be a profitable investment as long as you do it wisely. I have kept this post comprehensive to give you good clarity on all aspects of Small Cap Mutual Fund Schemes. Most importantly, I have shared the top five Small Cap Mutual Fund Schemes and you can compare the five and choose the best investment scheme or schemes for yourself.

Read Also| Best Mutual Funds to Invest in 2022 for Long Term.

Disclaimer
All the information are used for education purpose only. Investing in mutual funds poses a risk of financial losses. Investors must therefore exercise due caution. InvestoAxis is not liable or responsible for any losses caused as a result of decisions based on the article.

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