HomeBusinessThe Role of Small-Cap Funds in Long-Term Investment Strategies

The Role of Small-Cap Funds in Long-Term Investment Strategies

Navigating the market in the enormous array of investment options demands a deep comprehension of different asset classes. The most important is understanding the difference between the other funds, such as small-cap, mid-cap, and large-cap funds. This difference will help in creating a diversified portfolio for long-term financial success.

With a 45% return over the last year, small-cap funds have become prominent financial participants in the previous ten years. This article will discuss why small-cap funds, such as Quant small-cap mutual fund can play a significant role in long-term investments.

What are Small Cap Mutual Funds?

A company’s capitalisation must be considered while considering the different investment options for your portfolio. In terms of capitalisation, small-cap funds invest in every company except the top 250. Even though these funds are considered risky from a short or medium-term investment point of view, they can offer high returns if kept for the long term.

They can even double or triple your returns over a brief period. However, a risk factor is permanently attached, just like any other fund. Hence, diversification is the key. Therefore, you can always include a few small-cap funds to enjoy good returns.

Top 10 Small Cap Funds

If you are considering small-cap funds, here is the list of the top 10 that you can check out:

  • Quant small cap mutual fund
  • Nippon India small cap fund direct growth
  • DSP small cap direct plan growth
  • Axis small cap fund direct growth
  • Kotak small cap fund direct growth
  • SBI small cap fund direct growth
  • Canara Robeco small cap fund direct growth
  • TATA small cap fund direct growth
  • ICICI prudential small cap fund direct plan growth
  • HDFC small cap fund direct growth

Let’s look at their metrics:

Name Market Cap (in cr) NAV Expense Ratio 3 Years Annualised Returns 5 Years Annualised Returns
Quant small cap mutual fund 20164.09 240.97 1.67% 32.05% 39.36%
Nippon India small cap fund direct growth 45749.06 165.93 0.79% 33.84% 32.14%
DSP small cap direct plan growth 13038.55 178.72 1.02% 25.71% 26.38%
Axis small cap fund direct growth 20136.63 100.9 0.52% 25.02% 28.33%
Kotak small cap fund direct growth 14815.19 266.23 0.43% 24.04% 29.30%
SBI small cap fund direct growth 27759.65 175.77 0.69% 23.69% 26.73%
Canara Robeco small cap fund direct growth 10085.98 36.83 0.51% 27.59% 29.99%
TATA small cap fund direct growth 6951.59 38.50 0.29% 30.87% 29.91%
ICICI prudential small cap fund direct plan growth 7658.95 86.48 0.55% 28.59% 27.94%
HDFC small cap fund direct growth 29685.32 135.16 0.58% 29.34% 24.79%

Things to Consider While Selecting the Small Cap Funds

Although many small-cap funds are in the market, choosing the one that offers the best returns can be overwhelming. Here are a few things to consider when deciding which one to go with:

  1. Revenue growth – You must look at the companies offering small-cap funds sales growth. New and small companies can provide more revenue growth than larger ones. Also, look for a company that has a steady track record and not just one-time results. A slowdown in the top line may be a sign of impending failure or of the firm maturing.
  2. Expense ratio – Your investment’s net returns will be affected because of the expense ratio, making it a crucial element for consideration. Hence, the lower the expense ratio, the better the results.
  3. Tax implications – Investments in these funds are subject to capital gains tax. Short-term capital gains, for investments held less than one year, are taxed at a rate of 15%, while long-term capital gains, for investments exceeding 1 lakh, are taxed at 10%.

Conclusion

To conclude, small-cap funds have the potential for higher returns despite the high risk attached. Hence, they are great for all kinds of investors – from ones looking for long-term investment plans to people looking for portfolio diversification. Instead of worrying about the risk, the investors must focus on capitalising on the hidden investment gems and leverage their potential. However, careful considerations are always needed, such as checking your risk tolerance before investing in small-cap mutual funds.

Must Read

CATEGORIES

0
Would love your thoughts, please comment.x
()
x