10 Best Small Cap Mutual Funds 2023

Most young investors look for small cap mutual funds for investments when it comes to investing in mutual funds. However, anyone with a risk appetite and a long time period to invest, say a 5-10 year period can work well with these funds. If you are looking to invest in this category, you have come to the right place. 

Here, you will find the 10 best small-cap mutual funds you can consider for your portfolio, and how you can find the perfect match as per your needs.

What are Small-Cap Funds?

Small-Cap funds invest in the small companies, which have a market capitalization of less than Rs. 5,000 Crores. These companies are usually less famous and can have a high growth potential. Because they are small-cap, these companies can be extremely volatile, posing a moderate-to-high risk.

How to select a small cap mutual fund?

Selecting a small cap mutual fund can involve a lot of research work, here are the most important aspects you should consider – 

  • Goals – If you have a long time horizon for investment, then small cap funds can be a good choice for you to go with.
  • Risk Appetite – Small cap stocks, in which these funds are invested are volatile, you must have a risk bearing attitude.
  • Expense Ratio – The expense ratio of the fund should be low, higher the expense ratio, lower the earnings. 
  • Benchmark – The fund should have been performing at least at par with its benchmark. 
  • Sharpe Ratio – This is the risk adjusted return, higher the ratio, better the reward for the risk. However, it should also be compared with what the peers of the fund have. 
  • Alpha – It Indicates how the fund has performed as compared to the benchmark index fund value.

Also Check: Small Cap Stocks in India

The 10 best small cap mutual funds 2023

There is an absolute abundance of small-cap mutual funds in the market, and choosing from all the options is a tedious task, so here are the best options available that you can consider adding to your valuable portfolio –

  • Nippon India Small-Cap Fund Direct Profit-Growth
  • Sundaram Small-cap Fund – Direct Plan-Growth
  • Canara Robeco Small Cap Fund – Direct Plan-Growth
  • Tata Small Cap Fund – Direct Plan-Growth
  • Quant Small Cap Fund – Direct Plan-Growth
  • Axis Small Cap Fund – Direct Plan-Growth
  • ICICI Prudential Small Cap Fund – Direct Plan-Growth
  • HDFC Small Cap Fund – Direct Plan-Growth
  • DSP Small Cap Fund – Direct Plan-Growth
  • Edelweiss Small Cap Fund – Direct Plan-Growth

Let’s have a detailed look at these – 

1. Nippon India Small-Cap Fund Direct Profit- Growth

Nippon India Small cap fund, launched in 2013 has a NAV of Rs. 102.3. The 1-year returns of the fund have been 2.66%, which is better than its benchmark NIFTY 50 standing at -7.9%. The fund has 95.6% of funds allocated in Equity with the major fund allocation as follows – 

  • Capital Goods – 15.9%
  • Financial – 13.7%
  • Chemicals – 13.8% 
NameSharpe Ratio FUNDAlpha
Nippon India Small-CapFund Direct Profit – Growth1.168.64

The fund has been giving consistent annualized returns for the past 1-year, 3-year and 5-year periods as compared to its benchmark NIFTY 50 which was at 5.6% returns for a 5-year period when the fund gave 14.51%. The alpha value 8.64 indicates that it has generated higher returns than its benchmark. However, the AUM of 23,107 Crores is concerning, since funds with too high AUM do not tend to perform very well. 

2. Sundaram Small-cap Fund – Direct Plan-Growth

Sundaram Small-Cap Fund has a NAV of Rs. 161.63. The 1-year returns of the fund stand at -3.6% the benchmark performance being -7.9%. However, the picture is better on the SIP ground, where the fund gave 5.39% returns for a 1-year period. The fund has 94% of funds allocated in Equity with the major fund allocation as follows- 

  • Finance – 21.2%
  • Service – 12.8%
  • Capital goods – 11.1%
NameSharpe Ratio FUNDAlpha
Sundaram Small-CapFund – Direct Plan-Growth0.883.21

The fund has a low Crisil Ranking of just 2 stars, which is a discouraging factor, however, the fund has given good returns in the past 1-year period along with a fair alpha value. The fund can be a good option in the future with a better track- record probably, currently it asks for a high risk appetite as compared to peers.

3. Canara Robeco Small Cap Fund – Direct Plan-Growth

Launched in 2019 and with only 3 years in the market, this fund has a NAV of Rs. 26.4 and an expense ratio of just 0.39%. The fund has given 2.88% 1-year returns and 9.26% annualized returns for a 1-year period for SIP. The fund has 95.1% of its funds invested in Equity, the top allocations being – 

  • Service – 19.1%
  • Financial – 19%
  • Capital Good – 12.3%
NameSharpe Ratio FUNDCATEGORY AVERAGEAlpha
Canara Robeco Small CapFund – Direct Plan-Growth1.330.9813.73

Along with a good Crisil ranking of 4 stars, the fund also has an impressive Alpha value indicating it has performed 13.73% better than its benchmark index value. The Sharpe ratio as well is in a desirable position when compared with the category average. The fund can prove to be a fruitful investment if made for a long-term goal.

4. Tata Small Cap Fund – Direct Plan-Growth

This 2019 launched fund has a NAV of Rs. 25.88 and an expense ratio of 0.27%, which is among the lowest in this category. The fund has given a return of 7.36% for a 1-year period when the benchmark is at -7.9%. It’s 85.3% of asset allocation is in equity, the top sectors are – 

  • Service – 18.4%
  • Financial -15.3%
  • Chemical -14.4%
NameSharpe Ratio FUNDAlpha
Tata Small Cap Fund – Direct Plan-Growth1.198.74

The fund has a record of average performance in the past in comparison to its peers, although it has given an annualized return of 25.60% since its entry into the market as compared to the industry average of 18.89% for the same period, it is impressive. The standard deviation, indicating the volatility of the fund, is also low as compared to the industry average, which makes Tata Small-Cap Fund a perfect match for individuals looking for a comparatively low risk investment. 

5. Quant Small Cap Fund – Direct Plan-Growth

A NAV of Rs. 155.23 with an expense ratio of 0.62% makes Quant Small Cap fund a desirable fund to invest in. The past 1-year return by the fund comes out to be 5.25%, where the category average is -0.4%, the numbers portray a better position when seen for SIP investors, which is a 25.08% annualized return for the same period. As per the holding analysis of the fund, it has 98.4% in equity, with the top sectors being –

  • Consumer Staples – 21.6%
  • Financial – 17.1%
  • Construction – 13.5%
NameSharpe Ratio FUNDAlpha
Quant Small CapFund – Direct Plan – Growth1.6421.18

The Sharpe ratio and Alpha both show a very positive image of the fund, however, the Standard Deviation of 23.39 when the industry average is 19.69 clearly indicates a very volatile nature of the fund, indicating high risk. Although the risk can be minutely negated by a 21.6% investment in Consumer Staples, a sector which is stable, the fund can still be considered to be suitable for investors having a high-risk appetite. 

6. Axis Small Cap Fund – Direct Plan-Growth

Axis Small Cap Fund has a NAV of Rs. 71.54 and Asset Under Management of Rs. 11,390.24 Crores. The 1-year returns of the fund are 1.2%, which is higher than the category average of -0.4%. The fund has 81% of its assets in Equity, the top sectors are- 

  • Constructions – 20%
  • Chemicals – 18%
  • Healthcare – 12.7%
NameSharpe Ratio FUNDAlpha
Axis Small CapFund – Direct Plan-Growth0.975.96

The Chemicals Industry has been showing good growth with a CAGR of 9.3% and is expected to become a USD 304 Billion industry by FY25. The industry can have an advantage if the government shows more support in the upcoming budget and hence any fund having major investments in this industry can perform well in the coming years. The government’s increased focus on infrastructure will also help the construction industry to be in the limelight. However, considering the Sharpe ratio, now cannot be considered the ideal time to put in your complete trust on this fund. 

7. ICICI Prudential Small Cap Fund – Direct Plan-Growth

ICICI Prudential small cap fund launched 10 years ago has a NAV of Rs. 59.46 and an expense ratio of 0.81%, which is on the higher side considering the industry average of 0.79%. The fund puts 92.2% of its assets in Equity and the major holdings are in the following sector – 

  • Service – 22.4%
  • Healthcare – 15.1%
  • Capital Goods – 12.3%

The fund has given a return of 3.93% of a 1-year period and 13.27% annualized for SIP investors. 

NameSharpe Ratio FUNDAlpha
ICICI Prudential Small CapFund – Direct Plan – Growth15.2

The healthcare sector is expected to be focussed and invested more by the government in the upcoming budget. In the past, the sector has shown major improvement. However, the 10-year returns of the fund are lower than the category average by 1.38%. Considering the above information and a standard deviation of 20.09 which is higher than the category average, this fund can be considered best for investors with a high-risk appetite. 

8. HDFC Small Cap Fund – Direct Plan-Growth

Close to ICICI Small-Cap Fund, HDFC Small-Cap Fund has a NAV of Rs. 88.69 and an expense ratio of 0.82. The fund also maintains a low Crisil Rating of 2 Stars only. The fund has given returns of 2.13% for a 1-year period. Equity takes up 93.8% of this fund’s assets, the top sectors being – 

  • Service – 22.2%
  • Financial – 14.4%
  • Capital Goods – 12.6%
NameSharpe Ratio FUNDAlpha
HDFC Small CapFund – Direct Plan – Growth0.962.36

The only positives this fund shows is its consistency in giving more than the average results for 1-year, 5-year and 10-year periods. The fund is volatile in nature as indicated by its more than category average standard deviation. The sharpe ratio too does not portray a very favorable picture, but an alpha value of 2.36 can be considered a positive sign. This fund can again suit best in the portfolio of moderate to high risk takers, considering the Indian Economy’s focus on manufacturing, bringing the Capital Goods industry ahead of many. 

9. DSP Small Cap Fund – Direct Plan-Growth

DSP Small-Cap Fund has an NAV of 122.38, with an expense ratio of 0.92 which is higher than what most other funds in the category charge. The 1-year returns of the fund amount to -2.99%, but the situation is better for the SIP investors with annualized returns of 7.04%. 95.6% of the fund’s assets are devoted towards equity, the major sector allocations are as follows – 

  • Chemicals – 21.4% 
  • Consumer Staples – 11.5% 
  • Services – 9.9%
NameSharpe Ratio FUNDAlpha
DSP Small CapFund – Direct Plan – Growth1.045.37

The fund has a high Alpha (3-year value) which indicates a growth better than the benchmark in the last 3-year period. The annualized returns for the 10-year period are higher than the category average. Investment in high potential sectors like Chemicals and a stable sector like Consumer Staples makes it a balanced allocation among sectors. The fund can be perfectly suitable to low and moderate risk acceptors. 

10. Edelweiss Small Cap Fund – Direct Plan – Growth

The last fund in this list was launched about 4 years ago, this fund has given fairly average returns and earned a CRISIL rating of 3 stars. For the 1-year period, the returns were 0.44% when the benchmark returns were -0.4%. The NAV for the fund is Rs. 26.96 and a low expense ratio of 0.46%. The fund invests 96.1% of its assets in Equity, the priority sectors are – 

  • Capital Goods – 16.2%
  • Financial – 13.8%
  • Construction – 13.7%
NameSharpe Ratio FUNDAlpha
Edelweiss Small CapFund – Direct Plan – Growth1.149.48

The fund has an excellent Alpha and Sharpe ratio, indicating a good return scope for the funds in the future too. The only factor which should make you drive against this fund is its high volatility, which can be seen by its high standard deviation. The sector allocation has high yielding sectors like Finance and high growth sectors like capital goods and construction with foreign investments increasing especially in the construction sector.

Also Check: Best Large Cap Mutual Funds in India

Conclusion 

Small-Cap Funds are known to outperform the other equity funds and give better returns in the long-run. Investing in these funds, even though it is famously risky, they can also give a first-mover advantage to the investor by proving its potential in a 5 to 10 year term and providing substantial returns. One way a person can tackle the volatility of these funds is by opting the SIP route or by investing when the market is down. Keeping risk in mind, a person should always conduct their own analysis and make choices that best satisfy their goals and attitude towards risk tolerance.

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Navya

I am from a commerce background. I completed my Bachelor of Management Studies with a major in Finance from Delhi University in 2022. At present I am preparing for competitive exams and learning financial modelling. Besides, I have worked as an Equity Research Intern with an organization and as a Strategy Intern before that.

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