Mid cap and Small cap funds have gained huge attention in the past few years. Due to their potential of fast business growth, many investors have been taking a keen interest in Investing in these funds. Mid & small cap funds are a type of equity fund that invests in stocks of companies that have a potential to be the future leaders. mid cap funds invest in companies that have a market cap of INR 500 Cr to INR 1000 Cr, whereas, small caps are typically defined as firms with a market cap of around INR 500 Crore. These companies are more flexible in adapting changes than the larger companies, hence they can show rapid growth.
Many mid and small cap companies respond faster to innovations and changes in the market as they tend to be more focused and specialised in their niche. They also serve emerging industries with the potential for substantial future growth. Thus, these companies have the potential to generate good returns.
But both mid and small cap companies are volatile in nature. These are riskier than the Large cap funds. These funds are capable of delivering exceptional returns in a bull market phase, but at the same time, the stock of these companies can suffer badly during a bearish market cycle. Investors can invest in these funds to diversify their portfolio, but for good returns, it is advised to stay invested for minimum 5 years. Some of the best performing mid & small cap funds that can deliver promising returns are listed below.
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Fund NAV Net Assets (Cr) Rating 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 5 YR (%) 2020 (%) Information Ratio Sharpe Ratio Aditya Birla Sun Life Small Cap Fund Growth ₹37.911
₹2,431 ☆☆☆☆☆ 24.2 46.9 15.6 -5.5 10.3 19.8 0.07 0.55 L&T Emerging Businesses Fund Growth ₹27.319
₹5,733 ☆☆☆☆☆ 24.9 44 13.2 -2 14.4 15.5 -0.32 0.46 Nippon India Small Cap Fund Growth ₹51.5601
₹10,916 ☆☆☆☆ 25.2 43 24.7 2.2 16.3 29.2 1.18 0.73 Kotak Emerging Equity Scheme Growth ₹51.79
₹9,016 ☆☆☆☆ 24.4 39.4 21.3 7.2 16.9 21.9 0.78 0.61 HDFC Small Cap Fund Growth ₹48.01
₹9,596 ☆☆☆☆ 25.8 44.2 18.1 0.7 14.9 20.2 0.73 0.56 Franklin India Smaller Companies Fund Growth ₹61.4813
₹6,216 ☆☆☆☆ 28.8 49 17.5 -1.3 11.1 18.7 0.31 0.53 L&T Midcap Fund Growth ₹161.79
₹6,183 ☆☆☆☆ 18.7 31.6 16.3 1.9 14.6 19 0.14 0.56 Sundaram Mid Cap Fund Growth ₹541.119
₹5,926 ☆☆☆☆ 25.7 35.9 11.4 -0.1 11.7 11.8 -0.35 0.39 Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 21 Jan 21 Note: Ratio's shown as on 31 Dec 20
Fincash has employed the following parameters for shortlisting the top performing funds:
Past Returns: Return analysis of last 3 years
Parameters & Weights: Information ratio with some modifications for our ratings and rankings
Qualitative & Quantitative Analysis: Quantitative measures like Expense Ratio, Sharpe Ratio, Sortino Ratio, Alpa, Beta, Upside Capture Ratio & Downside Capture Ratio, including fund age and the size of the fund has been considered. Qualitative analysis like the reputation of the fund along with the fund manager is one of the important parameters that you would see in the listed funds.
Asset Size: The minimum AUM criteria for Equity Funds are INR 100 Crores with some exceptions at times for new funds that are doing well in the market.
Performance with Respect to Benchmark: Peer average
Some of the important tips to consider while investing in mid and small cap funds are:
Investment Tenure: Investors planning to invest in Diversified Funds should stay invested for minimum 5 years.
Invest via a SIP: SIP or Systematic Investment plan is the most efficient way to invest in a Mutual Fund. They not only provide a systematic way of investing, but also ensures regular investment growth. Also, due to their investment style, they can prevent the pitfalls of equity investments. You can invest in a SIP with an amount as low as INR 500.
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