Small-Cap Mutual funds are part of mutual funds where Investors pool in their investment to invest in the companies ranked after 251st in terms of market capitalization. These are the companies with a market capitalization of less than Rs. 500 crores. The Small-Cap mutual fund includes a minimum of 65% of total assets in equity and its related securities of small-cap companies and the remaining 35% in other companies like Mid-Cap or Large-Cap based on fund managers planning on the mutual fund scheme.
Small-Cap mutual funds provide high returns compared to Mid-Cap and Large-Cap mutual funds, with a High risk and reward ratio. Small volatility in the market could have a huge impact on the share prices of small-cap companies. Small-cap companies have a huge potential to offer great returns. Small-cap companies have huge potential to grow in the market. Many Investors lean towards small-cap mutual fund schemes for short-term investment goals.
Features of Small-Cap Mutual funds
High Returns and Risk:
Small-Cap mutual funds are investing money in Small-Cap companies. These companies provide good returns. Most of the Investment advisors advise adding a Small-Cap Mutual fund in their portfolio. Small-Cap mutual funds provide higher returns compared to Large-cap mutual funds and Mid-Cap mutual funds.
Small-Cap mutual funds move along with market sentiments so many small-cap companies suffer losses in bear market conditions. So, the risk in small-cap mutual funds is higher compared to Large-cap and Mid-Cap Mutual funds.
Expense Ratio:
Small-cap mutual funds charge you the fees for managing the Investment by the company that in general it is called the Expense ratio. SEBI has mandated the maximum limit of expense ratio is to be 2.50%. The Expense ratio to be considered in priority during the selection of scheme any scheme with a lower expense ratio will help to gain maximum profit.
Tax Implications:
Small-Cap mutual funds are subject to capital gains and dividend distribution tax both are explained below in brief below slab may change as per policy by the gov’t in the future.
- Capital Gains Tax
Withdrawing the units of a Mid-Cap Mutual Funds will add to taxable capital gains in the Income of an Individual. The rate at which you will be taxed depends on the period for which you stayed invested in the scheme – the holding period. The tax rates are as follows:
Long Term Capital Gain (LTCG) – A holding period of more than one year. There is no tax on LTCG of up to Rs. 1 lakh. Above this amount, LTCG is taxed at the rate of 10% without the benefit of indexation.
Short Term Capital Gain (STCG) – A holding period of up to one year. STCG is taxed at 15%.
- Dividend Distribution Tax (DDT)
As mandated by SEBI, all fund houses deduct a DDT of 10% before paying out dividends to unitholders.
Advantages of Small-Cap Mutual Funds:
- Small-cap mutual funds provide good returns compared to large-cap mutual funds and Mid-cap mutual funds.
- Small-cap mutual funds invest money in Small-cap companies, Few Small-cap companies have a high potential to give high returns on investment in a short period.
- Small-cap mutual funds are investing in the Small-Cap companies which may be new and undervalued, these companies may show their exponential growth in the market.
- Small-cap mutual funds are managed by professional fund managers and research analysts which invest the total investment minimum of 65% in small-cap companies and remaining in large-cap and Mid-Cap companies.
Disadvantages of Small-Cap Mutual Funds:
- Small-cap mutual funds do not provide stable returns in the market as compared to Mid-cap mutual funds and Large-Cap mutual funds. Small-cap company’s stocks are very sensitive and move as per the market conditions.
- Small-cap mutual funds are very risky compared to Large-cap and Mid-cap mutual funds.
- Small-cap mutual funds are not suitable for low-risk investors.
- The probability of return is high with more risk involved.
- Small-cap mutual funds hit badly during the bear market and also will not able to sustain in crisis.
Top 5 Small-Cap Mutual funds:
1. SBI Small-Cap Fund:
Fund size (Cr) : Rs. 5,039 Cr
1 Yr Return : 23.68% PA
3 Yrs Returns : 7.8% PA
5 Yrs Returns : 15.7% PA
7 Yrs Returns : 23.5% PA
NVA as on 18-Sep-2020 : Rs. 65.71
Expense Ratio : 0.99
2. Nippon India Small-Cap mutual Fund:
Fund size (Cr) : Rs. 9,285 Cr
1 Yr Return : 20.4% PA
3 Yrs Returns : 3.8% PA
5 Yrs Returns : 13.5% PA
7 Yrs Returns : 20.6% PA
NVA as on 18-Sep-2020 : Rs. 46.75
Expense Ratio : 1.21
3. Edelweiss Small-Cap Mutual Fund:
Fund size (Cr) : Rs. 503
1 Yr Return : 27.7% PA
3 Yrs Returns : NA
5 Yrs Returns : NA
7 Yrs Returns : NA
NVA as on 18-Sep-2020 : Rs. 13.27
Expense Ratio : 0.91%
4. Axis Small-Cap Mutual Fund:
Fund size (Cr) : Rs. 2,720 Cr
1 Yr Return : 19.1% PA
3 Yrs Returns : 10.5% PA
5 Yrs Returns : 13.7% PA
7 Yrs Returns : 21.2% PA
NVA as on 18-Sep-2020 : Rs. 37.04
Expense Ratio : 0.28%
5. Kotak Small-Cap mutual fund:
Fund size (Cr) : Rs. 1,667
1 Yr Return : 25.23% PA
3 Yrs Returns : 4.0% PA
5 Yrs Returns : 11.1% PA
7 Yrs Returns : 15.1% PA
NAV as on 18-Sep-2020 : Rs. 90.37
Expense Ratio : 0.72
Disclaimer: All the above informationis for educational purposes only, and the mutual fund’s companies shown are not be considered has recommendations has the above data might vary from actuals in the period of time. kindly read the scheme and policy-related documents carefully before investing in any mutual funds and visit the official website for more information.
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