5 Best Small Cap Mutual Funds to Invest for long term in 2023

We are going to discuss about the 5 Best Small Cap Mutual Funds to Invest for long term in 2023 and will see the best small cap funds by using our analysis and research .

What are small cap companies ?

Small-cap companies are typically characterized by a market capitalization (MC), which is calculated by multiplying the number of shares issued by the company by the market price per share, of less than INR 500 Crore. These companies are often young and possess substantial potential for sustainable long-term growth. However, it’s important to note that small-cap companies also carry a higher risk of failure compared to their larger counterparts, including mid-cap and large-cap companies. If you are seeking the best small-cap mutual funds, you’ll find that small-cap funds are exceptional tools for wealth creation over the long term. They can be instrumental in achieving various financial goals, such as funding a child’s education or planning for retirement. One of the advantages of small-cap funds is their ability to diversify portfolios effectively. Investors can allocate a modest portion, typically around 5-10%, of their overall portfolio to small-cap funds. This allocation has the potential to deliver strong performance over an extended investment horizon.

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What are small cap funds ?

Small-cap stocks are typically defined as those ranking from the 251st company onwards in terms of full market capitalization. According to industry norms, small-cap funds are required to allocate a minimum of 65 percent of their total assets to small-cap stocks. These funds are tailor-made for investors who seek to maximize their long-term returns and are comfortable with a higher level of risk. However, it’s crucial to bear in mind that small-cap investments can be quite volatile.

5 Best Small Cap Mutual Funds to Invest for long term

Investing in small-cap funds demands the ability to withstand the inherent volatility associated with these stocks. These funds have the potential to experience significant gains in bull markets but can also suffer steep declines during bear markets. To truly harness the benefits of small-cap investments and achieve optimal returns, investors should commit to a long-term horizon of at least three to five years. Small-cap funds can offer substantial growth potential, making them attractive options for those with a high-risk tolerance and a desire to see their investments flourish over time. However, due to their inherent risk and volatility, investors should carefully assess their financial goals and risk tolerance before venturing into these funds. Small-cap funds can play a valuable role in diversifying an investment portfolio, but they should be approached with a well-thought-out strategy and a focus on the long-term horizon.

5 Best Small Cap Mutual Funds to Invest for long term in 2023

Fund NameFund House
Axis Small Cap FundAxis Mutual Fund
SBI Small Cap FundSBI Mutual Fund
Kotak Small Cap FundKotak Mahindra Mutual Fund
Nippon India Small Cap FundNippon India Mutual Fund
Canara Robeco Small Cap FundCanara Robeco Mutual Fund

our methodology to select a funds yet you can learn more about the fund , past and expected future performnce by clicking on the fund name in the table .

  1. Mean Rolling Returns: We calculate the mean rolling returns on a daily basis over the past three years. This metric provides insight into a fund’s historical performance.
  2. Consistency over Three Years: We utilize the Hurst Exponent (H) to assess the consistency of a fund. The Hurst Exponent measures the randomness of a fund’s NAV series. Funds with a higher H tend to exhibit lower volatility compared to those with a lower H.
  3. Downside Risk: For this measure, we consider only the negative returns generated by the mutual fund scheme. Downside risk is computed as the square root of Z, helping us understand the fund’s performance during adverse market conditions.
  4. Outperformance: We gauge a fund’s outperformance using Jensen’s Alpha over the last three years. Jensen’s Alpha evaluates the risk-adjusted return achieved by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). A higher Alpha suggests that the fund’s performance has surpassed market predictions.

Please bear in mind that past performance does not guarantee future results, and these parameters are employed as a means of evaluating historical fund performance.

FAQs About Small Cap Companies and Funds

Q1: What are small cap companies?
A1: Small-cap companies are businesses with a market capitalization (MC) of less than INR 500 Crore. MC is calculated by multiplying the company’s market price per share with the number of shares issued. Small-cap companies are typically young and have the potential for long-term growth, but they also carry a higher risk of failure compared to larger companies.

Q2: What are small cap funds?
A2: Small-cap funds are mutual funds that primarily invest in stocks of small-cap companies. According to industry norms, these funds allocate at least 65 percent of their assets to small-cap stocks. Small-cap funds are suitable for investors looking for long-term wealth creation but should be chosen carefully due to their inherent volatility.

Q3: Can you recommend some small cap funds for 2023?
A3: Certainly, here are some top small cap mutual funds to consider for investment in 2023:

  • Axis Small Cap Fund (Axis Mutual Fund)
  • SBI Small Cap Fund (SBI Mutual Fund)
  • Kotak Small Cap Fund (Kotak Mahindra Mutual Fund)
  • Nippon India Small Cap Fund (Nippon India Mutual Fund)
  • Canara Robeco Small Cap Fund (Canara Robeco Mutual Fund)

Q4: Is past performance indicative of future results?
A5: No, past performance does not guarantee future performance. It’s essential to consider various factors, including current market conditions and economic factors, when making investment decisions.

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