Small Cap Funds

What are small cap funds?

Small cap funds are open ended equity schemes predominantly investing in small cap companies. The scheme invests minimum 65% of total assets in equity and equity related instruments.

Small cap companies are defined by companies that are ranked beyond 250th in terms of market capitalization. Small cap funds have opportunity to picks stocks from niche sectors which are under researched and where exponential growth can take place.

Why one should invest in Small cap funds?

Recently BSE Small cap index have corrected by ~25% since Jan 2018, this has created a valuation opportunity to invest in small cap funds. Small cap stocks are breeding ground for finding multibaggers. Since these stocks are less researched, there is a good chance of discovering some undervalued stocks.

Small caps have provided superior returns over large and mid caps. However before investing in Small cap funds one should consider the high risk and volatility involved.

Invest in Small Cap Funds to get better returns

Who should invest in Small cap funds?

Small caps are subject to high risk as compared to large and mid cap funds hence an investor with high risk appetite and investment horizon of more than 10 years should invest in small cap funds.

Typically investment through SIP is recommended in small cap funds. They can also be very volatile stocks as are punished harshly whenever the market sentiments turn weak.

What is tax implication on small cap funds?

Since Small cap funds invest more than 65% in equity and equity related instruments they carry taxation under equity oriented schemes. Gains earned on equity oriented schemes are taxable depending on holding period. Gains on investment horizon of upto 1 year are called short term and the rate of tax applicable is 15%.

Gains on Investment horizon of more than 1 Year are called Long Term Capital Gains. Long Term Capital Gains over and above Rs.100,000 are taxable at 10% without indexation.

Available Small cap funds:

Fund Name	Fisdom Rating
Reliance Small Cap Fund – Growth	[star rating=”5″]
L&T Emerging Business Fund Growth	[star rating=”4″]
Franklin India Smaller Companies Fund Growth	[star rating=”3″]
Aditya Birla Sun Life Small Cap Midcap Fund Growth	[star rating=”3″]
DSP Small Cap Fund Growth	[star rating=”2″]
HDFC Small Cap Fund Growth	[star rating=”1″]
Sundaram Small Cap Fund – Growth Option	Unrated
SBI Small Cap Fund Growth	Unrated
Kotak Small Cap Growth	Unrated
HSBC Small Cap Equity Fund Growth	Unrated
Union Small Cap Fund Growth	Unrated
IDBI Small Cap Fund Growth	Unrated
ICICI Prudential Smallcap Fund Growth	Unrated