Investment in SIPs is a popular choice among investors now, but often they wonder where should they invest? In a large-cap, a small-cap, or mid-cap funds?
Small-cap SIP mutual funds investments are generally preferred by experienced investors, who have been in the equity markets for a longer period than the newcomers. The reason is, they are quite habituated to the rise and fall of the equity markets, and they are better accustomed to the profit and loss. They mostly have a better risk appetite than others. But why so?
Investing in a small-cap SIP mutual fund means, the fund house will hold positions in the companies who are not bluechip, rather they are developing companies. That certainly means that the SIP will invest in the companies that are below the top 250 stocks in the equity markets, considering their market capitalization. Their market capitalization will be less than Rs. 5,000 crore, listed in the stock markets.
Here are the three best SIPs mentioned, that have given some of the best returns in the past years, and are also rated by reputed research firm, Crisil.
1. Nippon India Small Cap Fund
Nippon India Small Cap Fund is a Direct Plan. This Fund’s last NAV stood at Rs. 91.30 (Till Dec. 24). This fund’s Asset Under Management (AUM) is Rs. 17554.99 Crore, while the Expense Ratio is 1.03%. This fund has the best AUM in the three SIPs, mentioned in this article. The Nippon India Small Cap Fund has given 29.34% return in the last 1 year, 82.63% return in the last 2 years, 96.73% return in the last 3 years, and 107.25% return in the last 5 years. This fund has been rated 4 stars by Crisil.
The top 5 holdings of this fund are, Deepak Nitrite Ltd. – Chemicals speciality, Tube Investments Of India Ltd. – Auto ancillaries, KPIT Technologies Ltd. – Computers software, Birla Corporation Ltd. – Cement, and Navin Flourine International Ltd. – Chemicals – inorganic.
2. Kotak Small Cap Fund
Kotak Small Cap Fund is a Direct Plan, which has given one of the best returns in the peer. This Fund’s last NAV stood at Rs. 183.30 (Till Dec. 24). This fund’s Asset Under Management (AUM) is Rs. 6508.6 Crore, while the Expense Ratio is 0.48%. The Kotak Small Cap Fund has given 27.25% return in the last 1 year, 85.33% return in the last 2 years, 105.66% return in the last 3 years, and 119.02% return in the last 5 years. This fund has been rated 5 stars by Crisil.
The top 5 holdings of this fund are, Century Plyboards India Ltd., Sheela Foam Ltd. – Houseware, Carborundum Universal Ltd., Persistent Systems Ltd. – Computers software, and Supreme Industries Ltd. As, a small-cap SIP, this fund’s Large Cap Investments are 1.81%, Mid Cap Investments are 11.38%, Small Cap Investments is 69.7%, and 10.53% in other funds.
3. Quant Small-Cap plan
Quant Small Cap is a Direct Plan. This Fund’s last NAV stood at Rs. 133.97 (Till Dec. 24). This fund’s Asset Under Management (AUM) is Rs. 1270.6 Crore, while the Expense Ratio is 0.5%. The Quant Small-Cap plan has given 32.13% return in the last 1 year, 118.76% return in the last 2 years, 144.34% return in the last 3 years, and 152.14% return in the last 5 years. This fund has been rated 5 stars by Crisil.
The top 5 holdings of this fund are, ITC Limited – Cigarettes, Indiabulls Real Estate Ltd., Arvind Ltd. – Fabrics and garments, Bank Of India, and India Cements Ltd. This fund’s Large Cap Investments are 11.02%, Mid Cap Investments are 7.67%, Small Cap Investments is 68.9%, 8.98% in other funds.
Irrespective of the point of long term or short term, this fund has given the best returns among the three above-mentioned funds. So, this can be a good option to invest in, additionally, this is a top-rated fund by Crisil. However, this fund’s AUM is the lowest among all of them, which makes it a bit riskier than the other two funds. Hence, if you have a better risk appetite, you can check this SIP mutual fund.
On the other hand, the Nippon India Small Cap Fund has given the lowest return among all three mentioned funds, but it has the lowest NAV, or unit price. That means you can buy more units of the Nippon India Small Cap Fund with a certain amount of money.
Should you invest in small-cap funds for SIP?
As the small-cap companies are yet developing, they will have better potential to grow in the future. So, they will can you a better return. But, with that, there are risk factors. Like, these companies can perform poorly, and they have less market capitalization. Hence, your money can face major losses in the market. So, both the profit and loss can be huge, and you need to understand your risk appetite before investing in any fund. Additionally, for a small-cap fund, an investor should check the fund’s top holdings in stocks and sectors. If the sectors and the companies are performing well, certainly, the fund will have a better potential to grow. Like, the pharma sector has performed well during the pandemic. So, even the small-cap pharma companies have grown quite reasonably.
Investing in SIPs imposes a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, and the author, are not liable for any losses caused as a result of decisions based on the article.