How to find the best Small Cap Fund for investing amid wide divergence in returns
Small-cap funds have been on a roll of late, with the category receiving nearly Rs 18,000 crore of inflows, or 25% of the fresh inflows into actively managed equity mutual funds, in the first half of calendar 2023.
The strong inflows are led by the category’s strong performance compared with other equity mutual fund categories, particularly large and mid-cap funds, in recent times. The category gave 34% returns in the past 1 year ending June 23 versus 23% and 30% for the large and mid-cap categories, respectively.
Even when considering long-term investment horizon of 5 years, the small-cap category has performed better, with returns of 17% versus 12% and 15% for the large-cap and mid-cap categories respectively.
But while the returns are high, investors drawn to the category need to understand that the risks may be substantial, too. A case in point is the huge divergence in the returns of the best-performing and worst-performing small-cap funds.
In this article, we delve into the factors contributing to the divergence and what investors should look at while investing in this category.
Also Read: Should you invest in multi-cap or flexi-cap mutual funds?
While at an aggregate level, small-cap funds have generated superlative returns, the variability of returns offers a more nuanced story.
For a three-year return period, the variability in returns of small-cap funds stood at 31% compared with 13% for large-cap funds, 19% for midcap funds, 10% for large and mid-cap funds, and 24% for flexi-cap funds.
The variability is higher when analysed for a longer period of five years, as seen from the chart.
Small-cap funds are mandated to invest at least 65% of their assets in small-cap stocks.
As per the list published by
Read more on financialexpress.com
