Index Fund Corner
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| Scheme Name | 1-Year Return | Invest Now | Fund Category | Expense Ratio |
|---|---|---|---|---|
| Axis Nifty 50 Index Fund | +32.80% | Invest Now | Equity: Large Cap | 0.12% |
| Axis Nifty 100 Index Fund | +38.59% | Invest Now | Equity: Large Cap | 0.21% |
| Axis Nifty Next 50 Index Fund | +71.83% | Invest Now | Equity: Large Cap | 0.25% |
| Axis Nifty 500 Index Fund | — | Invest Now | Equity: Flexi Cap | 0.10% |
| Axis Nifty Midcap 50 Index Fund | +46.03% | Invest Now | Equity: Mid Cap | 0.28% |
Small-cap mutual funds have also taken a hit, with some losing up to 15% in one month.
This downturn comes amid months of foreign fund outflows, totalling over $19 billion since September, including $7 billion in January alone.
Concerns over a slowdown in the economy and earnings growth have pushed investors into a risk-off mode, impacting small- and mid-cap stocks the hardest.
Amid the turmoil, small-cap investments continue to attract interest due to their potential for long-term wealth creation and diversification benefits.
However, the current volatility has left many investors wondering how to approach this segment.
Why small caps still attract investors?
Despite the sell-off, small caps remain attractive for their higher growth potential and ability to uncover undervalued opportunities.
“Investors, especially Gen Z, millennials, and experienced risk takers, are drawn to small caps for their capacity to deliver higher alpha,” said Varun Goel, Senior Fund Manager – Equity, Mirae Asset Investment Managers (India).
Goel attributed the interest to India’s structural growth story, supported by government reforms, rising consumption, and a revival in industrial and capex cycles.
The case for long-term investments
Small caps historically outperform over the long term.
“Over a 5-10 year horizon, small-cap stocks have delivered annualised returns of around 17%. Few asset classes can match this,” noted Goel.
Here’s a look at 5-year returns of some of the small cap funds:
| Scheme | Benchmark | 5-Year Return (Regular) (%) | 5-Year Return (Direct) (%) |
| Aditya Birla Sun Life Small Cap Fund | BSE 250 SmallCap Total Return Index | 18.37 | 19.64 |
| Axis Small Cap Fund | NIFTY Smallcap 250 Total Return Index | 23.04 | 24.76 |
| Bandhan Small Cap Fund | BSE 250 SmallCap Total Return Index | — | — |
| Bank of India Small Cap Fund | NIFTY Smallcap 250 Total Return Index | 29.69 | 31.84 |
| Baroda BNP Paribas Small Cap Fund | NIFTY Smallcap 250 Total Return Index | — | — |
| Canara Robeco Small Cap Fund | NIFTY Smallcap 250 Total Return Index | 27.58 | 29.55 |
| DSP Small Cap Fund | BSE 250 SmallCap Total Return Index | 24.75 | 25.86 |
| Edelweiss Small Cap Fund | NIFTY Smallcap 250 Total Return Index | 27.32 | 29.35 |
| Franklin India Smaller Companies Fund | NIFTY Smallcap 250 Total Return Index | 24.64 | 25.7 |
| HDFC Small Cap Fund | BSE 250 SmallCap Total Return Index | 24.95 | 26.15 |
| HSBC Small Cap Fund | NIFTY Smallcap 250 Total Return Index | 25.66 | 27.07 |
| ICICI Prudential Smallcap Fund | NIFTY Smallcap 250 Total Return Index | 23.75 | 25.37 |
| Invesco India Smallcap Fund | BSE 250 SmallCap Total Return Index | 26.3 | 28.22 |
| ITI Small Cap Fund | NIFTY Smallcap 250 Total Return Index | — | — |
| Kotak Small Cap Fund | NIFTY Smallcap 250 Total Return Index | 24.97 | 26.65 |
| LIC MF Small Cap Fund | NIFTY Smallcap 250 Total Return Index | 25.1 | 26.33 |
| Mahindra Manulife Small Cap Fund | BSE 250 SmallCap Total Return Index | — | — |
| Motilal Oswal Small Cap Fund | NIFTY Smallcap 250 Total Return Index | — | — |
| Nippon India Small Cap Fund | NIFTY Smallcap 250 Total Return Index | 29.92 | 31.03 |
| PGIM India Small Cap Fund | NIFTY Smallcap 250 Total Return Index | — | — |
| Quant Small Cap Fund | NIFTY Smallcap 250 Total Return Index | 39.38 | 41.12 |
| Quantum Small Cap Fund | BSE 250 SmallCap Total Return Index | — | — |
| SBI Small Cap Fund | BSE 250 SmallCap Total Return Index | 22.62 | 23.9 |
| Sundaram Small Cap Fund | NIFTY Smallcap 250 Total Return Index | 23.83 | 25.25 |
| Tata Small Cap Fund | NIFTY Smallcap 250 Total Return Index | 26.4 | 28.57 |
| Union Small Cap Fund | BSE 250 SmallCap Total Return Index | 23.19 | 24.38 |
(Source: AMFI)
Goel further emphasised that their current valuations and post-market consolidation present opportunities for long-term wealth creation.
He added that many small-cap companies have the potential to scale into mid- or large-cap businesses, providing significant growth opportunities.
Investment approach
Small-cap investments require skilled active fund management due to their high volatility and liquidity constraints.
Investors should consider small-cap funds as part of a diversified portfolio.
“Risk-averse investors should allocate a smaller percentage to small caps. Risk-tolerant investors can allocate more for higher alpha potential,” advised Goel.
Systematic investment p—lans (SIPs) remain a preferred route for navigating volatility and benefiting from rupee-cost averaging.
“Small-cap investments should be long-term plays to capture compounding benefits and sectoral growth opportunities,” he added.
