Top 5 Small-Cap Funds of 2023: Outperforming Mid and Large-Cap Competitors

As the investment landscape constantly evolves, identifying the right investment avenues becomes crucial for those seeking growth opportunities. In 2023, small-cap funds have once again caught the attention of investors seeking potentially higher returns despite their inherent volatility. Investing in small-cap funds in India can be rewarding but comes with higher risk due to the volatility associated with smaller companies. However, if chosen wisely, these funds can offer substantial growth potential over the long term. 

With the end of the year 2023 just around the corner, we’re preparing to step into a new year starting next week. This article will focus on examining the performance of the top five small-cap funds that have shown remarkable returns in the year 2023. Additionally, we’ll also assess the leading equity small-cap fund based on the Assets Under Management (AUM) using the AUM data from November 2023. 

Before directly delving into the top-performing Equity small-cap fund, let’s quickly compare the returns of different categories of funds, such as large-cap, mid-cap, and small-cap funds, across various time frames: 

According to the table above, Mid Cap funds have outperformed the Large Cap funds across all time frames, while Small Cap Funds have outperformed both the Large Cap and Mid Cap funds across all time frames. However, it doesn’t mean that Large-cap funds are not a great option to invest in. They provide more safety and stability, carry lower risk, and offer enhanced liquidity compared to both Mid and Small Cap Funds.

Top Equity Small Cap Fund as per AUM: 

Top Five Small Cap Funds: 

Now, let’s explore the top five best-performing small-cap funds in 2023. Small-cap mutual funds refer to schemes that invest a minimum of 65% of their AUMs in small-cap stocks. These funds have not only outperformed their benchmarks but have also provided spectacular returns in the last year. 

Mahindra Manulife Small Cap fund  

The Mahindra Manulife Small Cap fund secured the top position by delivering an impressive return of approximately 55.87% in the last year. The scheme aims to achieve long-term capital appreciation by investing in a diversified portfolio consisting of equity and equity-related securities of small-cap companies. Fund managers Abhinav Khandelwal and Manish Lodha oversee the fund’s management. The fund was launched on December 12, 2022. As of November 30, 2023, the expense ratio stands at 0.14%, notably lower than the category average of 0.62%. 

Franklin India Smaller Companies fund  

The Franklin India Smaller Companies fund secures the second position in terms of performance, generating an impressive return of 52.94% in the last year. The fund’s objective is to provide long-term capital appreciation by investing in mid and small-cap companies, specifically those with a market capitalization below that of the 100th stock in and above in the S&P CNX 500 Index. Fund managers Sandeep Manam, Akhil Kalluri, and R. Janakiraman oversee the management of this fund. It was launched on January 13, 2006. As of November 30, 2023, the expense ratio stands at 1.78%, slightly below the category average of 1.88%. 

Bandhan Small Cap fund 

The Bandhan Small Cap fund holds the third position in performance and has achieved an impressive return of 52.90% in the last year. The fund aims to generate long-term capital appreciation primarily by investing in equities and equity-linked securities within the small-cap segment. It was launched on February 25, 2020, and is managed by fund managers Manish Gunwani and Kirthi Jain. The expense ratio for this fund is reported to be 1.87%. 

ITI Small Cap fund  

The ITI Small Cap fund has emerged as the next best-performing fund, delivering a return of 52.8% in the last year. The scheme aims to generate capital appreciation by predominantly investing in equity and equity-related securities of small-cap companies. Fund managers Rohan Korde, Dhimant Shah, and Tanay Gabhawala are responsible for managing the fund. It was launched on February 14, 2020. As of November 30, 2023, the expense ratio stands at 1.98%, slightly higher than the category average of 1.88%. 

Nippon India Small Cap Fund 

Finally, the Nippon India Small Cap Fund has achieved a return of around 48.8% over the past year. The primary aim of this fund is to generate long-term capital appreciation by primarily investing in equity and equity-related instruments of small-cap companies. Its secondary objective is to generate consistent returns by investing in debt and money market securities. The fund is managed by Kinjal Desai, Tejas Sheth, and Samir Rachh. It was launched on September 16, 2010. As of November 30, 2023, the expense ratio stands at 1.53%, which is lower than the category average of 1.88%. 

 Always remember, that investing in mutual funds carries market risks, and past performance does not guarantee future results. Diversification, research, and understanding your investment goals are key aspects of making informed investment decisions. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.