Top 3 Small Cap Mutual Funds to look at in 2023
In this article, we will discuss Small cap bilateral funds and the Top 3 Smallcap funds which most likely outperform their peers in 2023.
Smallcap bilateral funds are high-risk – upper return probity bilateral funds that invest at least 65% of the corpus in companies that rank unelevated 250 in terms of market capitalization which have the potential to offer largest returns in the future if they outgrow the market. Investment in Small Cap bilateral funds is associated with higher risk levels compared to mid-cap and large-cap funds as they invest in lesser-known and under-researched companies.
Smallcap bilateral funds are taxed like any other probity fund. In the short term (within one year), the gains are subject to STCG tax of 15%. In the long term (after one year), the gains exceeding INR 1 lakh are subject to LTCG tax of 10%.
First, let’s squint at the advantages of investing in Smallcap funds:
- Ability to outperform large-cap and mid-cap funds since small-cap companies have a higher potential to grow.
- They offer diversification which is very important to cocoon any economic shocks since smallcap companies are very sensitive to market forces.
- Low upfront investment requirement.
- Top funds are highly liquid.
- Ideal for very high-risk want investors who can patiently invest and those willing to swizzle short-term volatility
Now, the cons:
- They are very vulnerable to merchantry cycles and hence are increasingly volatile than mid and large-cap funds.
- Smallcap funds are sensitive to market conditions hence during an economic slipperiness larger, well-established companies tend to do largest than Small cap companies.
Factors to consider:
There are several factors to consider while selecting Smallcap bilateral funds but today will mention a few major ones, they are;
- Standard deviation
- Beta.
- Sharpe Ratio.
- Jensen’s Alpha.
- Treynor’s Ratio.
- Expense Ratio.
Top 3 Smallcap funds:
- Axis Small Cap Fund:
It is an open-ended probity scheme predominantly investing in small-cap stocks and the investment objective is to generate long-term wanted appreciation from a diversified portfolio of predominantly probity & equity-related instruments of small-cap companies. These companies are either at their nascent or developing stage and are under-researched. Its benchmark is Nifty Smallcap 250 TRI.
The tideway for the Axis Small Cap Fund is two-fold – qualitative and quantitative. Quantitative factors include looking at upper profitability, low debt to equity, and earnings consistency withal with stable mazuma spritz and strong return metrics; whereas qualitative factors include transparency of operations, strong internal controls, and sustainable long-term merchantry models.
Fund manager:
- Anupam Tiwari, since 6 Oct-2016.
This fund has an AUM of Rs. 11,390 Cr and has given a 23.56% CAGR return since its Inception. The minimum investment value for this fund is Rs. 500 and the spare investment value is Rs. 100 .
There is no entry load for the fund but there is some exit load:
- For redemption / switch out of up to 10% of the initial investment value (limit) purchased or switched in within 1 year from the stage of allotment: NIL.
- If units redeemed or switched out are in glut of the limit within 1 year from the stage of allotment: 1%.
- If units are redeemed or switched out on or without 1 year from the stage of allotment: NIL
This scheme is suitable for investors looking for:
- Long-term wanted growth (at least 5 years and above).
- Investors who are willing to swizzle short-term volatility.
Returns:
Some Important Ratios:
| Standard Deviation | 18.62 |
| Beta | 0.76 |
| Sharpe Ratio | 0.97 |
| Jensen‘s Alpha | 3.32 |
| Treynor’s Ratio | 0.22 |
| Expense Ratio | 0.51% |
- Canara Robeco Small Cap Fund:
The investment objective of the scheme is to generate wanted appreciation by investing predominantly in Small Cap stocks (>65%). However, there can be no warranty that the investment objective of the scheme will be realized. Its benchmark is Nifty Smallcap 250 TRI.
Fund manager:
- Ajay Khandelwal since 16-Dec-2021
- Shridatta Bhandwaldar since 01-Oct-2019
This fund has an AUM of Rs. 4,568 Cr and has given a 26.66% CAGR return since its Inception. The minimum investment value for this fund is Rs. 5000 and the spare investment value is Rs. 1000 .
There is no entry load for the fund but there is some exit load:
- If units redeemed or switched out are in glut of the limit within 1 year from the stage of allotment: 1%.
- If units are redeemed or switched out on or without 1 year from the stage of allotment: NIL
Returns:
Some Important Ratios:
| Standard Deviation | 20.6 |
| Beta | 0.87 |
| Sharpe Ratio | 1.33 |
| Jensen‘s Alpha | 10.53 |
| Treynor’s Ratio | 0.32 |
| Expense Ratio | 0.41% |
- Kotak Small Cap Fund:
It is an open-ended probity scheme predominantly investing in small-cap stocks and aims to generate wanted appreciation from a diversified portfolio of probity & equity-related securities by investing predominantly in the small market capitalisation companies wideness sectors. The scheme aims to provide the benefit of potential growth offered by Small Cap stocks, which have the potential to wilt tomorrow’s large-cap. Its benchmark is Nifty Smallcap 250 TRI.
Fund manager:
- Pankaj Tibrewal since 01-Jan-2013.
This fund has an AUM of Rs. 8,498 Cr and has given a 19.47% CAGR return since its Inception. The minimum investment value for this fund is Rs. 5000 and the spare investment value is Rs. 1000 .
There is no entry load for the fund but there is some exit load:
- For redemption / switch out of up to 10% of the initial investment value (limit) purchased or switched in within 1 year from the stage of allotment: NIL.
- For redemption / switch out of up to 10% of the initial investment value (limit) purchased or switched in within 1 year from the stage of allotment: NIL.
- If units redeemed or switched out are in glut of the limit within 1 year from the stage of allotment: 1%.
- If units are redeemed or switched out on or without 1 year from the stage of allotment: NIL
Returns:
Some Important Ratios:
| Standard Deviation | 18.62 |
| Beta | 0.78 |
| Sharpe Ratio | 1 |
| Jensen’s Alpha | 5.9 |
| Treynor’s Ratio | 0.24 |
| Expense Ratio | 0.59% |
Conclusion:
Smallcap companies are lulu to invest in as they have very upper growth potential and they requite higher returns than large and Midcap companies when the market is in a bullish phase hence investing in Smallcap Bilateral funds which invest mostly (>60%) on midcap companies could prove to be very profitable. However, investors must be cognizant of the risks associated with small-cap bilateral funds since they are extremely volatile and are placed on the higher end of the risk-return spectrum. Hence Mid cap bilateral funds are weightier suit investors that very high-risk want and are willing to invest for the medium to long-term horizon.
Disclaimer:
This vendible should not be construed as investment advice, please consult your Investment Adviser surpassing making any investment decision.