When you are looking forward to building an investment portfolio that caters your long-term goals, it is important to incorporate those funds which dwell enormous growth potential. These funds are essential to provide the much-needed hike to your returns in the long-term horizon. Small-Cap Funds are the perfect example of such funds which are relatively unstable, but have strong hold on growth-bearing possibilities. In this article, we will have a detailed discussion about the benefits of these funds and shortlist the best Small-Cap funds for you to invest in.

Why Should You Invest in Small-Cap Funds?

  • High Growth Prospects: The top Small Cap Mutual Funds have larger growth anticipation owing to their lower capital base. For instance, it’s possible for a company to expand its size from Rs 20 crore, than for a company to magnify its presence from Rs 20,000 crore. Small-Cap companies offer highly innovative and delivering products that constantly beat the benchmark unlike its existing competitors. This invites speedy progress as compared to larger companies, and thus helps to reward its investors in a better way.
  • Potential of Larger Investments: Since Small-Cap companies are less popular than other bigger companies and tend to have trivial background of equity research, they can often be acquired by fund managers at a serious discount to their original value.
  • Investment in Promising Companies: Small-Cap Mutual Funds invest in companies having extremely competent business model on account of future earnings, further expansion in market cap, and advantage over its competitors. Therefore, these funds are focused on extremely efficient industry sectors which helps to expand and bloom enormous wealth to their investors.

Best Small-Cap Funds

  1. L&T Emerging Businesses (G): It is an open-ended growth-oriented plan that aims to generate long-term capital appreciation from a diversified portfolio of equities and related securities. With an NAV of Rs. 26.99 as on 4th December 2017 and asset size of Rs. 1581.4 crore, it holds marvellous returns record of 54.22% and 24.66% over 1 yr and 3 yr period, respectively.
  2. Reliance Small-Cap Fund (G): The objective of the fund is to generate excellent risk-adjusted returns with a prime focus on smaller capitalization companies. Holding an NAV of Rs. 44.56 as on 4th December 2017 and assets pool of worth Rs. 4371.55 crore, it holds record return stream of 52.34% and 23.65% over a 1 yr and 3 yr period, respectively.
  3. Aditya Birla Sun Life Small & Mid-Cap Fund (G): This fund aims at long-term capital boost by investing predominantly in equity and equity-related securities, with a specific portion of its corpus in fixed income securities including Money Market Instruments to meet liquidity requirements. It has an NAV of Rs. 42.34 as on 4th December 2017 and assets size of Rs. 1089.98 crore. It managed to provide returns to the tune of 45.55% and 22.68% in a 1 yr and 3 yr term, respectively.

Thus, Small-Cap Funds should surely form a part of any long term investment portfolio. It is wise to diversify your investment by choosing any two or more different funds to dilute the risk factor and enhance the chances of rewards.

Small-Cap Funds are high risk/reward profile schemes that are best suited to investors who are comfortable in tolerating extreme volatility. These funds bear great potential in achieving commendable capital appreciation.

Author's Bio: 

Dishika is a finance expert working with MySIPonline and disseminates financial literacy through his blogs and articles.