What are Mid Cap and Small Cap mutual funds? How these funds are different from Large Cap mutual funds? What are the top/best Mid Cap and Small Cap mutual funds to invest in 2014-2015?
Everybody in the Equity market knows about established companies like Reliance Industries, Infosys, and Tata Steel. But, there are many companies which are growing very fast, but not known like the biggies. These companies may be in their growth phase and over a period of time, they will join the big league. If you can identify such companies and invest in it when they are small, your returns can be very high. If you had purchased shares of Wipro in 1980 for Rs. 10,000, you will be having a wealth of crores. But the investors in companies like Kingfisher Airlines lost their money.
It is very difficult to identify the promising companies at the beginning stage. For one such Wipro, many companies failed in the market and many investors lost their money. For retail investors, the best option will be to invest in Mid and Small Cap Funds to get an exposure to such small companies.
Definition of Mid Cap and Small Cap Mutual Funds
These Funds invest mainly in Mid and Small companies, which are in their growth phase. Identifying such companies is a huge task, which will be done by the professional Fund Managers and Research Team of the Fund House. According to Money Control, funds that invest less than 45% in CRISIL-defined Large Cap Stocks for a minimum of six out of the nine months in each period over the past 3 years are coming under this category.
Top 5 Mid Cap and Small Cap Mutual Funds in India
Please check the details of the best 5 Funds in the Mid & Small Cap category. These Funds are selected based on the long-term track record, reputation of the Fund House, quality of the Fund Management Team etc.
- ICICI Prudential Value Discovery Fund
Benchmarked to CNX Midcap index, this Fund’s return in the last one year is 80%. The Fund follows the principle of value investing to buy stocks at discounts to their intrinsic value. The Fund follows a rigorous process to identify fundamentally strong well-managed companies which are out of market’s favour. The Fund has shown remarkable resilience in a lean market and handsomely leaped in a rising market. This is a 10-yr-old fund with an asset size of Rs. 7,244 Crores.
- Franklin India Smaller Companies Fund
Benchmarked to CNX Midcap index, this Fund’s return in the last one year is 94%. The scheme aims to provide long-term capital appreciation by investing in Mid and Small Cap companies. Normally, it would invest at least 75% of its assets in smaller companies. The Fund invests in companies with the possibility of good growth for the next one or two decades, very good cost control, willingness to pay out to minority shareholders and less capital intensity in the business. This is an 8-yr-old fund with an asset size of Rs. 1,436 Crores.
- IDFC Premier Equity Fund
Benchmarked to S&P 500 index, this Fund’s return in the last one year is 67%. The objective of this Fund is to generate long-term capital growth from an actively managed portfolio of predominantly Equity and Equity-related instruments. It would invest in small and medium-sized businesses with good long-term potential, which is available at cheap valuations. This is a 9-yr-old fund with asset size of Rs. 6,394 Crores. This Fund is limiting its size by stopping fresh investments, depending on the market conditions.
- HDFC Mid Cap Opportunities Fund
Benchmarked to CNX Midcap index, the Fund’s return in the last one year is 84%. The aim of the Fund is to generate long-term capital appreciation from a portfolio that is substantially constituted of Equity and Equity-related securities of Mid & Small Cap companies. This is a 7-yr-old fund with a fund size of Rs. 7,925 Crores.
- SBI Emerging Business Fund
Benchmarked to S&P BSE 500, the Fund’s return in the last one year is 61%. The scheme would primarily focus its investments in emerging business themes, primarily based on the export or outsourcing opportunities and global opportunities of such themes. It will also focus on emerging domestic investment themes. This is a 10-yr-old fund with a fund size of Rs. 1,587 Crores.
Best 5 Mid Cap and Small Cap Mutual Funds -Summary
Brief details of the 5 recommended Funds are given below. All values in the articles are extracted from Value Research Online as on 21st November, 2014.
Where to invest?
You should have a core portfolio of Large Cap diversified funds. To add to the portfolio, you can have one or two Mid Cap and Small Cap Mutual Funds. This is because, though Mid Cap and Small Cap Mutual Funds offer excellent returns during bull phases, they will be more volatile during bear phases.