Best 5 Small Cap Mutual Funds To Invest In 2018

Looking for best 5 small cap mutual funds to invest in 2018? Well, Small Cap funds are the best wealth creation tools for financial planning goals, but only you need to keep one thing in mind that you have to be invested in small cap funds for 10-15 years. You can align your Financial planning goals with these funds like retirement planning, for child education etc. Small Cap funds invest in the young firm that has a potential to become a multi-bagger company in the future If the potential of these companies realized then it may fill your pocket with a big profit.

Small Cap funds come with promising returns if you hold it for say 10-15 years, but it comes with higher risk exposure too, as compared to midcap funds and large-cap funds. However, Small cap funds help to diversify the portfolio and investor should at least allocate 5-10 % of portfolio holdings in small cap funds.

If you are first time investor in Mutual funds then you have to go thorough first with Kyc process. Now Kyc is replaced with Ckyc which will provide you unique Ckyc identifier unique no, which can be quoted anytime while you invest in with any financial intermediary. You would not be required to submit all of kyc documents.You can can get the details about the Ckyc and Ckyc identifier from my earlier blog post.

So, which are the funds to invest in 2018, where we can park our hard-earned money for 10-15 years so that we could multiply our investments in many folds? 

Best 5 Small cap Mutual Funds 


L& t emerging businesses funds is one of the top 5 small cap mutual funds that we can refer to our investors to invest for long term.

We have calculated the rolling returns of the fund and found a very interesting result that it had given more than 20% returns in every market phases, if you invest in any month, for the last 3 years tenure.

Comparison of rolling returns with midcap and small-cap fund category.

  • Fund having Beta 1.10, which defines the volatility with the comparison of its benchmark
  • Alpha of the fund 13.85% means we can expect that fund can give a return in excess than its benchmark.
  • In Direct option, we just need to pay 1.58% fee as fund management charges (expense ratio) to manage the fund

 Also Read Top 5 Best Midcap Funds To Invest In 2018


Hdfc small cap fund has a track record of just over about 10 years. The year on year fund performance with the comparison of NIFTY FREE FLOAT SMALL CAP INDEX 100, It has beaten 6 times in last 10 years. In 2013 fund has beaten its benchmark by 15 % margin point. The performance was repeated in 2018 till date. Even though the market headed lower, HDFC Small Cap Fund was able to reduce the losses.

Nevertheless, over the long-term period of 3 years and 5 years, the scheme has generated acceptable alpha over the benchmark.

In terms of risk, HDFC Small Cap fund is among the fund with the lowest volatility. The standard deviation which measures the risk is much lower than the benchmark and its other peers in top performing funds.

Thus, HDFC small cap fund ranks high in risk-adjusted performance, even though it returns are on lower side.

If you would have invested 5 years ago 10,000 Rs. in HDFC Small Cap fund, then its value would have grown till now to 31,757 with the CAGR of 26%. The small-cap fund has outperformed its benchmark by a good margin.

To reduce risk, HDFC Small Cap fund maintains a well-diversified portfolio. While the portfolio focuses primarily on a buy and holds strategy at most times, it will balance the same with a rational approach to selling when the valuations become too demanding even in the face of reasonable growth prospects in the long-run.

Over the past 12 months, a fund has increased its cash exposure to 15%, Given the high valuation in small and midcap space, fund management has reduced its exposure from Midcap and small cap and increased its allocation into cash. The weightage to small-caps has ranged between 40%-50% over the past 12 months. Large-caps account for a very small portion of the assets, hovering under 5%.


Fund has held onto 4 star and 5-star rating since 2013, it has beaten its benchmark without the break-in last 9 years, it maintains the quality in term of growth-oriented, quality and sustainable companies in its portfolio.

The fund usually holds 30 to 40 percent of its portfolio in small-caps, 45 to 50 percent in mid-caps and 10 to15 percent in large-caps. The fund’s approach is wholly bottom up. It looks for companies which can compound their earnings at a high rate, with good returns on capital, low capital intensity and capable management. To handle size, it has a leeway to invest 25 percent of its corpus in large-caps.

If we would have invested 1,00,000 Rs in the same fund 10 years ago then it would have grown to 4,36,619 but in the same duration, its benchmark would have given you 2,41,586 only.

Some key points for the fund

  • Beta of the fund which defines the volatility with its benchmark i.e. 0.86%
  • Fund has generated exceptional Alpha over the benchmark performance i.e. 9.28%
  • Sharpe ratio of the fund i.e. 0.96, it defines the excess return (over risk-free rate) per unit of risk.


Reliance small cap fund has beaten its benchmark over six years since inception. It is true to its label of small cap fund featuring 60-70 % allocation in small cap stocks and 30%-35% in midcap with a very small portion in large cap.

The fund adheres to a simple philosophy of finding good businesses at a good price.

This is one of the rare funds in the equity space which have beaten their benchmark as well as a category overall time frames: one year, three years, five years or even seven years. Over three and five years, the fund has been ahead of its benchmark by 6 to 13 percentage points. Compared to the category, it has managed 3 to 5 percentage point outperformance. In the last one year, it has even widened its outperformance of the category to 7 percentage points.


If you started monthly Sip of Rs. 5000 in SBI Small and Midcap fund 5 years back, your investment value would have been over Rs. 872163 in Jan 2018. On a cumulative investment of 3,00,000, you would have made a profit of Rs. 572163. The 5 years return of sip in this fund was over 37% in last 5 years. While 37% return in last 5 years is an extraordinary performance by the standard, what makes the fund more admirable is the fact that in the last 5 years equity was quite volatile despite this it could generate that much return on its portfolio.

  • The SBI Small and Midcap Fund has always been among the top 3 small and midcap equity mutual funds in terms of SIP returns in the last 3 to 5 years.
  • This fund has beaten its benchmark five out of the seven years since its launch. A substantial boost to performance in the last one year has earned it a five-star rating within the small-cap category.
  • The fund’s stock picks in the small-cap space in the past couple of years have been behind the strong performance. The fund is among the few in this space to remain at an easy to manage size at Rs 908 crore as on January 2018
  • The fund portfolio has a small cap bias and the investment style of the fund manager is growth oriented. The fund portfolio is overweight on cyclical sectors like Chemicals, Auto Ancillaries, Industrial Products, Media and Entertainment and Consumer Durables.

(The fund is currently not open for fresh subscriptions. However, the existing unitholders will continue with their respective SIP investments till the end of the SIP tenure)

The SBI Small & Midcap Fund, which was suspended for new investments in October 2015, started for fresh subscriptions through the systematic investment plan (SIP) mode from May 16. It will be called SBI Smallcap Fund and have an investment cap of ₹25,000 per month and per PAN card.

As we have discussed above Top 5 small cap mutual funds to invest in 2018, which has delivered strong performance over the last 6-7 years, Investors need to have a long-term investment horizon if you are looking exceptional growth on your investment. investors need to be prepared for volatility as well with these funds, but you can take the advantage of volatility through rupee cost averaging by investing through SIP.

I would like to thank value research and advisorkhoj for their insightful articles, which helped me to pen down this article about best 5 small cap mutual funds to invest in 2018

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