When it comes to high-risk equity investments, financial advisors prefer small-cap funds for the long term, as these funds tend to outperform large-cap and mid-cap funds in the long run. The Indian equity market has been very volatile in recent times, due to several global and domestic factors, but according to Value Research, small-cap funds have given returns of 8.99 per cent in the past month, with returns of 21.67 per cent. Past returns of 12.42 per cent over the last three years, and over the last five years, which is much higher than large-cap, mid-cap, flexi-cap and multi-cap funds. Small-cap funds managed to generate over 60% annualized returns in 2021, which is again strong as compared to other fund categories. Small-cap funds have traditionally been shown to be riskier and more volatile in the short to medium term than other equity-focused funds, but they can outperform other funds in the long run. However, investors should look for funds that have outperformed the small cap benchmark. Since the domestic market has weakened significantly and is now in a bearish phase, it may be beneficial to invest in small-cap funds for a diversified portfolio in small amounts as every dip is a buying opportunity. As a result, here are two funds that have been ranked No. 1 by CRISIL and have provided 104.61% SIP returns over three years.
Quant Small Cap – Direct Plan-Growth
The fund was established on 7 January 2013, and is rated No. 1 by CRISIL and 3 Star by Value Research. Quant Small Cap Fund Direct Plan-Growth had a last one year return of 54.70 per cent, and has provided an average annual return of 8.38 per cent since its inception. As on 31/03/2022, Quant Small Cap Fund is Direct Plan-Growth 1,822 crore in assets under management (AUM) and a NAV 125.11 as of May 27, 2022. The fund invests mostly in consumer staples, services, healthcare, construction and materials sectors and has a low expense ratio of 0.62 per cent. ITC Limited, IRB Infrastructure Developers Limited, Arvind Limited, Linde India Limited and Hindustan Copper Limited are the top five holdings of the fund.
| Duration | full return | annual return |
| 1 year | -3.57% | -6.57% |
| 2 years | 51.94% | 46.23% |
| 3 year | 104.61% | 52.55% |
| 5 year | 120.81% | 32.34% |
| Source: Money Control. Data as of May 27, 2022 |
BOI AXA Small Cap Fund – Direct Plan-Growth
CRISIL has ranked this fund as No. 1 and Value Research has given it a five-star rating. Since its inception on December 19, 2018, the fund has achieved an average annual return of 29.83 per cent. The 1-year growth rate of BOI AXA Small Cap Fund Direct was 11.49 per cent. BOI AXA Small Cap Fund Direct-Growth has an expense ratio of 1.19 percent and assets under management (AUM) 297 crore as on 31/03/2022 with a NAV of 24.54 as of May 27, 2022. The fund invests in the financial, materials, technology, capital goods and chemical industries. KPR Mills Ltd., ICICI Bank Ltd., Balrampur Chini Mills Ltd., Greenpanel Industries Ltd. and TI Financial Holdings Ltd. are the top five holdings of the fund.
| Duration | full return | annual return |
| 1 year | -5.1% | -9.34% |
| 2 years | 32.65% | 29.87% |
| 3 year | 66.82% | 36.26% |
| Source: Money Control. Data as of May 27, 2022 |
Disclaimer: Ideas and considerations should not be considered the primary basis for making investment decisions.