Best Small Cap Mutual Funds Based On 5 Year Sip Return October 2024

_{Published on: 31 Oct, 2024 06:00}

Top 10 small cap mutual funds based on 5 years SIP return. 

Fund Name
Quant Small Cap Fund
Nippon India Small Cap Fund
Tata Small Cap Fund
Bank of India Small Cap Fund
Invesco India Smallcap Fund
Edelweiss Small Cap Fund
Franklin India Smaller Companies Fund
Canara Robeco Small Cap Fund

 

• Quant Small Cap Fund is the top performer in 5-Year SIP returns however, its performance has deteriorated, as we can see from 1-year SIP returns.

• Tata Small Cap Fund has more stable returns, as we can see from the percentiles.

• Quant Small Cap Fund has the highest standard and semi-deviation, similarly, max drawdown and VaR 1Y are the highest among the top ten funds
• Nippon India Small Cap Fund has the best Sharpe Ratio. 

Investors looking to maximize returns in the small-cap segment often prioritize funds with consistent performance over the years. A critical metric for identifying top-performing funds is the Extended Internal Rate of Return (XIRR), which provides a snapshot of how well a fund has grown on an annualized basis over a particular period. In this analysis, we’ve focused on funds with a strong 5-year XIRR as an indicator of robust performance and sustainability, offering a window into funds that have weathered market volatility while delivering impressive returns.

While 1-year and 3-year returns provide insight into short- to mid-term performance, the 5-year XIRR highlights a fund’s ability to consistently deliver over a more extended period. This approach is especially relevant for small-cap funds, which are known for higher volatility. The 5-year XIRR gives us a stable benchmark to assess the potential of each fund for long-term wealth creation. Here’s a closer look at the top funds based on their 5-year XIRR, risk metrics, and other key characteristics.

Overview of Top Small-Cap Funds Based on 5-Year XIRR

Our selection includes a diverse mix of small-cap funds that have excelled in returns and exhibit favorable risk characteristics, such as Sharpe Ratio and Standard Deviation, which highlight their risk-adjusted returns and volatility.

• 5-Year XIRR: 46.14%
• Sharpe Ratio: 1.27
• Standard Deviation: 17.16%
• Max Drawdown: -15.77%

Quant Small Cap Fund stands out with the highest 5-year XIRR of 46.14%, making it a compelling choice for investors seeking top-tier returns in the small-cap space. The Sharpe Ratio of 1.27 indicates efficient risk-adjusted returns, although the fund has a slightly elevated standard deviation, reflecting the typical volatility seen in small-cap investments. Despite this, its drawdown is manageable, demonstrating the fund’s resilience during market downturns.

 

• 5-Year XIRR: 39.79%
• Sharpe Ratio: 1.54
• Standard Deviation: 14.65%
• Max Drawdown: -10.63%

Nippon India Small Cap Fund combines high returns with a strong Sharpe Ratio of 1.54, emphasizing its ability to balance returns with controlled risk. Its lower max drawdown of -10.63% compared to peers suggests a more conservative approach within the small-cap domain, making it a preferable choice for those who are slightly risk-averse but still wish to explore small-cap opportunities.

• 5-Year XIRR: 38.44%
• Sharpe Ratio: 1.47
• Standard Deviation: 13.28%
• Max Drawdown: -11.09%

Tata Small Cap Fund’s 5-year XIRR of 38.44% and a Sharpe Ratio of 1.47 reflect its ability to deliver returns with minimized volatility. Its standard deviation of 13.28% is relatively low, indicating controlled fluctuations in fund value—a trait that may appeal to investors wary of extreme volatility in the small-cap segment.

• 5-Year XIRR: 37.53%
• Sharpe Ratio: 1.20
• Standard Deviation: 15.05%
• Max Drawdown: -15.24%

While delivering a solid 5-year XIRR of 37.53%, the Bank of India Small Cap Fund has a slightly higher standard deviation, suggesting increased volatility. However, the fund's resilience and Sharpe Ratio of 1.20 affirm that it still offers a rewarding balance of risk and return, making it suitable for investors comfortable with moderate risk in pursuit of higher returns.

• 5-Year XIRR: 36.16%
• Sharpe Ratio: 1.34
• Standard Deviation: 14.29%
• Max Drawdown: -15.10%

Invesco India Smallcap Fund is another high-performing small-cap fund with a balanced risk-return profile. With a 5-year XIRR of 36.16% and a commendable Sharpe Ratio of 1.34, this fund manages volatility effectively while delivering consistent returns, marking it as a solid option for growth-oriented investors.

Each of the above funds demonstrates not only impressive long-term returns but also a commendable risk profile. Here are key factors that contribute to their selection:

1. High 5-Year XIRR: Each fund has proven its capacity to deliver attractive returns over a five-year period, setting them apart in terms of sustained growth.
2. Risk-Adjusted Performance: The Sharpe Ratio, Sortino Ratio, and Treynor Ratio provide deeper insights into how well each fund manages risk relative to its returns. Funds with higher ratios, like Nippon India Small Cap Fund, showcase efficient risk management, making them more appealing to investors who prioritize stability.
3. Volatility Control: Standard deviation and max drawdown figures help investors gauge each fund’s historical volatility and resilience during market dips. A fund with a lower standard deviation and a moderate drawdown is typically a safer bet for those concerned about extreme market fluctuations.

Risk management is crucial when investing in small-cap funds due to the inherent volatility of this category. Factors such as VaR (Value at Risk) and average drawdown provide a closer look at potential losses. Funds like Tata Small Cap and Nippon India Small Cap have relatively low drawdown and VaR, which underscores their ability to limit losses in turbulent times.

• Max Drawdown represents the maximum observed loss from a peak to a trough, signaling how deep the fund might drop during market downturns.
• Value at Risk (VaR) estimates potential losses in the fund’s worst-case scenario over a one-year period, offering a quantitative view of downside risk.

Selecting the right small-cap mutual fund is not only about chasing high returns but also about understanding the underlying risk. For investors with a higher risk tolerance, funds like Quant Small Cap Fund or Bank of India Small Cap Fund might be ideal for their robust 5-year XIRR. Meanwhile, those seeking a balance between returns and risk management might find Nippon India Small Cap Fund or Tata Small Cap Fund more appealing due to their stronger risk-adjusted metrics and lower volatility.

By focusing on the 5-year XIRR, investors can identify funds that have consistently performed well, aligning with long-term wealth creation goals. However, as with any investment, it’s crucial to consider individual risk tolerance, investment horizon, and financial objectives when selecting a fund. With these top small-cap funds, investors have promising options to tap into the growth potential of India’s burgeoning small-cap market.