5 Best Small Cap Funds to invest in 2022 in India

Best Small Cap Funds to invest in 2022 - Top Smallcap Mutual Funds in IndiaTop and Best Small Cap Funds to invest in 2022 India

While Nifty50 index provides stable returns, midcap and smallcap segment provide high returns. Nifty Smallcap index has generated 15.6% annualized returns in the last 5 years and over 16% returns since inception. Some of the active Small Cap Funds have beaten the benchmark and generated superior returns too. If you are a high risk investor and willing to invest for over 10 years, small cap mutual funds should be forming part of your portfolio. What are small cap mutual funds? Which are the Best Small Cap Funds to invest in 2022 in India? How is the past performance of these top small cap mutual funds?

Also Read: Best mid cap mutual funds to invest in 2022

What are small cap mutual funds?

Smallcap funds in simple terms invest in small cap companies. Small cap stocks are ranked from 251 to 500 in terms of market capitalization. Small cap stocks have potential to grow to midcaps and then to large cap companies in the medium to long term.

While large cap funds provide stable returns, smallcap funds (can be volatile in the short term) can generate high returns in the medium to long term.

5 Best Small Cap Funds to invest in 2022

We could observe that majority of the smallcap funds are able to perform well due to recent bull run in 2020 and 2021. However, one can look at consistent performing small cap funds. Here is the list of consistent performing top small cap mutual funds to invest in India.

Returns indicated here are for direct plans. Since direct plans in mutual funds have < 10 year performance history, we have provided the performance metrics up to 5 years only.

#1 – Axis Smallcap Fund

#2 – SBI Smallcap Fund

#3 – Nippon India smallcap fund

#4 – Kotak smallcap fund

#5 – Quant Smallcap fund

Top and Best Small Cap Funds to invest in 2022 – Detailed View

Let us get into more detailed view about these top smallcap mutual funds for 2022, risk metrics and performance statistics.

#1 – Axis Smallcap Fund

This fund investment objective is to generate long-term capital appreciation from a diversified portfolio of predominantly equity & equity related instruments of small cap companies in India.

This fund generated 23% annualized returns in the last 5 years.

This fund generated SIP returns of 43% and 30% for 3 years and 5 years respectively.

This fund has a low beta of 0.73. Beta refers to the volatility of the fund compared to its benchmark. Any fund that has a beta of lower than 1 can be considered as less volatile compared to the benchmark.

This fund has an alpha of 12.63. Alpha is excess returns earned over the benchmark. Any fund that has alpha of more than zero can provide higher returns compared to benchmark.

From a 5 year rolling return perspective, this fund generated :

  • Over 12% returns – 88% of the times
  • Over 1% to 12% returns – 12% of the times
  • It did not generate any negative returns.

From a 3 year rolling return perspective, this fund generated :

  • Over 12% returns – 74% of the times
  • Over 1% to 12% returns – 25.75% of the times
  • Negative returns – 0.25% of the times

Here are the performance and risk statistics.

Performance & Risk Metrics Axis Smallcap Fund
Value Research Rating 5 Star
3 Years – SIP Returns 43%
5 Years – SIP Returns 30%
5 Years – Annualised Returns 23%
AUM –  Crores 8,411
Expense Ratio 0.36%
Risk Grade Low
Return Grade Above Average
Beta 0.73
Alpha 12.63

Considering all these factors, it is one of the Best Small Cap Funds to invest in 2022.

#2 – SBI Smallcap Fund

This  MF investment objective is to provide investors with opportunities for long-term growth in the capital along with the liquidity of an open-ended scheme by investing predominantly in a well diversified basket of equity stocks of small cap companies.

This fund generated 24% annualized returns in the last 5 years.

This fund generated SIP returns of 43% and 28% for 3 years and 5 years respectively.

This fund has a low beta of 0.78. Beta refers to the volatility of the fund compared to its benchmark. Any fund that has a beta of lower than 1 can be considered as less volatile compared to the benchmark.

This fund has an alpha of 8.15. Alpha is excess returns earned over the benchmark. Any fund that has alpha of more than zero can provide higher returns compared to benchmark.

From a 5 year rolling return perspective, this fund generated :

  • Over 12% returns – 85% of the times
  • Over 1% to 12% returns – 15% of the times
  • It did not generate any negative returns.

From a 3 year rolling return perspective, this fund generated :

  • Over 12% returns – 62% of the times
  • Over 1% to 12% returns – 37.5% of the times
  • Negative returns – 0.5% of the times

Here are the performance and risk statistics.

Performance & Risk Metrics SBI Smallcap Fund
Value Research Rating 4 Star
3 Years – SIP Returns 41%
5 Years – SIP Returns 27%
5 Years – Annualised Returns 23%
AUM –  Crores 11,288
Expense Ratio 0.77%
Risk Grade Below Average
Return Grade Above Average
Beta 0.77
Alpha 8.04

Considering all these factors, it is one of the Best Small cap Funds for SIP to invest in 2022.

#3 – Nippon India smallcap fund

This fund objective is to generate long term capital appreciation by investing predominantly in equity and equity related instruments of small cap companies.

This fund generated 23% annualized returns in the last 5 years.

This fund generated SIP returns of 52% and 31% for 3 years and 5 years respectively.

This fund has a low beta of 0.92. Beta refers to the volatility of the fund compared to its benchmark. Any fund that has a beta of lower than 1 can be considered as less volatile compared to the benchmark.

This fund has an alpha of 7.56. Alpha is excess returns earned over the benchmark. Any fund that has alpha of more than zero can provide higher returns compared to benchmark.

From a 5 year rolling return perspective, this fund generated :

  • Over 12% returns – 58% of the times
  • Over 1% to 12% returns – 42% of the times

From a 3 year rolling return perspective, this fund generated :

  • Over 12% returns – 37% of the times
  • Over 1% to 12% returns – 47% of the times
  • Negative returns – 16% of the times

Here are the performance and risk statistics.

Performance & Risk Metrics Nippon India smallcap fund
Value Research Rating 4 Star
3 Years – SIP Returns 50%
5 Years – SIP Returns 30%
5 Years – Annualised Returns 22%
AUM –  Crores 18,933
Expense Ratio 1.03%
Risk Grade Average
Return Grade Above Average
Beta 0.92
Alpha 7.28

If you observe, this fund is highly volatile in the short term of 3 years. This is why I say such funds are high risk in the short term.

We reviewed this fund few weeks back which is one of the Best Multibagger Mutual Funds that generated 10x returns in last 10 years.

#4 – Kotak smallcap fund

This mutual fund objective is to generate capital appreciation from a diversified portfolio of equity and equity related securities by investing predominantly in small cap companies.

This fund generated 23% annualized returns in the last 5 years.

This fund generated SIP returns of 54% and 33% for 3 years and 5 years respectively.

This fund has a low beta of 0.9. Beta refers to the volatility of the fund compared to its benchmark. Any fund that has a beta of lower than 1 can be considered as less volatile compared to the benchmark.

This fund has an alpha of 11.72. Alpha is excess returns earned over the benchmark. Any fund that has alpha of more than zero can provide higher returns compared to benchmark.

From a 5 year rolling return perspective, this fund generated :

  • Over 12% returns – 55% of the times
  • Over 1% to 12% returns – 44.4% of the times
  • Negative returns – 0.6% of the times

From a 3 year rolling return perspective, this fund generated :

  • Over 12% returns – 36% of the times
  • Over 1% to 12% returns – 50% of the times
  • Negative returns – 14% of the times

Here are the performance and risk statistics.

Performance & Risk Metrics Kotak Smallcap fund
Value Research Rating 4 Star
3 Years – SIP Returns 52%
5 Years – SIP Returns 31%
5 Years – Annualised Returns 22%
AUM –  Crores 6,811
Expense Ratio 0.49%
Risk Grade Below Average
Return Grade High
Beta 0.90
Alpha 10.80

If you observe, even this fund is highly volatile in the short term of 3 years. Again, I re-iterate, such funds are high risk in the short term.

Considering all these factors, it is one of the Top Smallcap Funds to invest in India.

#5 – Quant Smallcap fund

The fund aims to generate capital appreciation by investing in a well-diversified portfolio of small cap companies.

This fund generated 23% annualized returns in the last 5 years.

This fund generated SIP returns of 73% and 41% for 3 years and 5 years respectively.

This fund has a low beta of 0.96. Beta refers to the volatility of the fund compared to its benchmark. Any fund that has a beta of lower than 1 can be considered as less volatile compared to the benchmark.

This fund has an alpha of 12.57. Alpha is excess returns earned over the benchmark. Any fund that has alpha of more than zero can provide higher returns compared to benchmark.

From a 5 year rolling return perspective, this fund generated :

  • Over 12% returns – 29% of the times
  • Over 1% to 12% returns – 51% of the times
  • Negative returns – 20% of the times

From a 3 year rolling return perspective, this fund generated :

  • Over 12% returns – 37% of the times
  • Over 1% to 12% returns – 23% of the times
  • Negative returns – 40% of the times

Here are the performance and risk statistics.

Performance & Risk Metrics Quant Smallcap fund
Value Research Rating 3 Star
3 Years – SIP Returns 73%
5 Years – SIP Returns 41%
5 Years – Annualised Returns 24%
AUM –  Crores 1,517
Expense Ratio 0.56%
Risk Grade High
Return Grade High
Beta 0.95
Alpha 13.71

This fund has outperformed in terms of annualized returns with all its peers, however, in terms of rolling returns, it has generated negative returns for short to medium term. For me, this is high risk, high return fund.

Considering all these factors, it is one of the Top Performing Smallcap CMutual Funds to invest.

List of Top Small Cap Funds to invest in 2022

*Returns are for direct plans and are annualized.

Mutual Fund Name 1 Year 3 Years 5 Years
Axis Smallcap Fund 50% 35% 23%
SBI Smallcap Fund 40% 32% 23%
Nippon India smallcap fund 57% 32% 22%
Kotak Smallcap fund 50% 39% 22%
Quant Smallcap fund 86% 43% 24%

FAQs on Small Cap Funds

1) Which smallcap fund is best in 2022?

There are over 25 small cap funds. However, if we look at consistent returns in terms of rolling returns + annualized returns and eliminate any negative returns in terms of rolling returns consistency, below small cap funds are best for 2022.

  • Axis Smallcap fund
  • Nippon India Smallcap fund

2) Which are the best small cap mutual funds as per Value Research?

Below are the top rated small cap mutual funds as per Value Research.

  • Axis Smallcap fund – 5 Star
  • BOI Axa Smallcap fund – 5 Star
  • Kotak Smallcap fund – 4 Star
  • Nippon India Smallcap fund – 4 Star
  • SBI Smallcap fund – 4 Star
  • Tata Smallcap fund – 4 Star

3) Do Smallcap mutual funds qualify for tax savings?

No. Smallcap mutual funds do not qualify for tax savings. If you are looking for tax savings, you need to invest in ELSS mutual funds

4) How Smallcap mutual funds are taxed?

When you sell or redeem small cap mutual funds, you need to pay capital gains tax on the returns. The rate of income tax depends on how long you stay invested in such funds.

  • Short term capital gains <= 1 Year – Taxed at a rate of 15%
  • Long term capital gains > 1 Year – Taxed at a rate of 10% without indexation (beyond Rs 1 Lac in a financial year for entire equity investment).

5) Which is the best smallcap growth fund?

Among the entire smallcap mutual fund category, Nippon India Smallcap outperformed in the last 10 years (in terms of returns from regular plan, as direct plan came < 10 years).

  • This fund generated 26% annualized returns in the last 10 years.
  • 1 lac invested 10 years back would have turned to 11 lacs.
  • Rs 10 K invested through SIP per month for 10 years in this Smallcap growth fund would have grown now to Rs 46.6 Lakhs.

6) Which is the best small cap mutual fund as per Crisil?

Crisil ranks mutual funds in 1 to 5 ranking (5 is good and 1 is worse). Below are best small cap mutual funds as per Crisil with Rank-5.

  • Kotak Small cap fund
  • Quant Small cap fund

7) Who can invest in small cap mutual funds?

  • Largecap mutual funds invests in largecap companies and relative stable compared to other category of funds. Smallcap funds invest in smallcap companies which are high risk in nature.
  • These are for high risk investors only.
  • If a consistent performing small cap fund is chosen, it can generate good returns in the medium to long term.
  • High risk investors who are willing to invest for over 10 years can invest in small cap funds.
  • Due to recent bull run in 2020 and 2021, active small cap funds have generated very high returns. This segment has historically generated 15% to 17% returns. While past performance is just an indication, it can indicate how well such funds can perform in various market cycles.

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6 comments

  • Savaee

    Hi Suresh, Please suggest the category of mutual funds to invest for aggressive and high risk taker investor. Please guide If 2-4 funds to be selected for such investor, can 2 mid cap and 2 small cap funds is right combination?

    • If you are looking for aggressive funds, you can opt for PGIM Midcap, Quant Midcap, Kotak Smallcap and SBI Smallcap funds. These are high risk, high return funds.

  • Prabhat

    Very informative analysis Suresh Ji. Appreciate your suggestions and see additional information/summary from other research like Valueresearchonline along with yours. Thank you and I started following your articles as well.

  • Ranjiv

    Which small cap fund is better between HDFC small cap & Axis small cap fund.
    Actually I am already invested in HDFC small cap fund for last 3 years or.
    So wants to know that I need to switch to Axis small cap for better returns & less volatility or let it continue with HDFC.

    Pl advice

    • While both are good, personally I would prefer Axis smallcap due to its consistent performance (both in terms of annualised returns + rolling returns point of view).

  • Surinder Gill

    Most useful analysis for an average retail investor. Gives a realistic framework for investing in Small-Cap Funds. Thank you

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