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Top Small-Cap funds to invest in 2022

13 Jun 2022 0 COMMENT

Introduction

If you have a high-risk appetite and wish to benefit from the growth potential of emerging companies, investing in the best small-cap funds can help you. According to the Securities and Exchange Board of India, small-cap mutual funds must invest at least 65% of their fund money in small-cap companies. 

Small-cap companies comprise all publicly listed companies that are below the top 250 companies by market capitalisation. 

Features of small-cap mutual funds

  • Small-cap mutual funds invest in small-cap companies. These could be companies with smaller revenue and are in early phase of their lifecycle
  • Small cap companies could exhibit a high growth potential. Therefore, small-cap mutual funds could provide high returns 
  • These funds are highly volatile. Small-cap companies may not be financially stable. This can cause the price to fluctuate wildly 
  • Owing to their extreme price fluctuations, small-cap companies can be risky investments. Consequently, most small-cap mutual funds are rated as high-risk investments
  • During a bull run, small-cap funds usually outperform mid-cap and large-cap funds. The reverse is true during a bear market  

Why invest in small-cap funds? 

The prices of small-cap companies are extremely volatile. That’s because these companies are still growing and have the potential to become large cap or mid cap in the future. When you invest in the top small-cap funds that have exposure to the best small-cap companies, you stand the chance of making a higher profit. The price volatility combined with the potential for growth makes a perfect recipe for high returns in the long run. 

That’s another aspect of small-cap mutual funds to keep in mind. These are not for the short term. Experts suggest that you should consider an investment horizon of at least five to seven years. These are also not for the faint-hearted. If extreme price volatility irks you, it may be best to steer clear of these funds. 

Additional read: How to Choose the Best Equity Mutual Fund

Top small-cap funds to invest in 2022

While there are many small-cap mutual funds to choose from in the market, here are top picks from ICICIdirect that are likely to provide reasonable returns in the long run:

Scheme

1Y return

3Y return

5Y return

Kotak Small Cap Fund

17.69%

29.8%

16.69%

Nippon India Small Cap Fund

19.55%

26.08%

17.04%

SBI Small Cap Fund

14.85%

25.62%

18.9%

ICICI Prudential Smallcap Fund

22.46%

25.01%

14.05%

TATA India Tax Savings

7.88%

12.35%

11.22%

Invesco India Small Cap Fund

13.43%

23.05%

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Conclusion

The best small-cap funds have the potential to make you wealthy in the long run. However, like every other investment, you must do your research. Do a background check on the historical performance of the mutual fund and the fund managers. Also, make sure that your risk appetite is high enough to stomach the extreme volatility of small-cap mutual fund investments.

Disclaimer: 

ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400025, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds and all disputes with respect to the distribution activity would not have access to Exchange investor redressal or Arbitration mechanism.

Please note that Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. I-Sec does not assure that the fund's objective will be achieved. Please note. NAV of the schemes may go up or down depending upon the factors and forces affecting the securities markets. Information mentioned herein is not necessarily indicative of future results and may not necessarily provide a basis for comparison with other investments. Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

The information provided is not intended to be used by investors as the sole basis for investment decisions, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific investor.The contents herein above shall not be considered as an invitation or persuasion to trade or invest. Investors should make independent judgment with regard suitability, profitability, and fitness of any product or service offered herein above. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.