Best small cap funds to invest in 2021 - Business2Business

The SEBI Guidelines require that small-cap mutual fund schemes invest at least 65% of their group in very small companies. Sippy has defined small businesses as

With so many small-cap funds offering returns close to 100% in a single year, these schemes are enjoying their place in the sun. Here's a monthly update on our recommended little mutual fund plans for 2021. The good news is, there were no changes to this list in April.

Small-cap mutual funds, which went through a difficult period from 2017 to 2019, saw a rebound in the fourth quarter of 2020. The rebound in the recovery saw some smaller funds achieve impressive returns. Currently, the small-cap fund category delivered an average return of 92.60% last year.

The SEBI Guidelines require that small-cap mutual fund schemes invest at least 65% of their group in very small companies. Sippy has defined small businesses as companies below the 250 in the stock exchange in terms of market capitalization rating.


Due to their investment world, small-cap mutual fund schemes can be extremely risky. Small-cap stocks suffer the most during a severe stock market recession or even the slightest bouts of volatility. That is why these charts are only recommended for investors who have the ability to take very high risks and tolerate volatility.

Small-cap mutual fund schemes have the potential to provide high returns over a long period of time. This is because small-cap schemes are betting on small companies with very high growth potential. When a small business grows into a very large business, the shares of the business will be valued many times over. Simply put, small business stocks can be the many desirable factors that every investor dreams of owning.

If you are a high-end investor and have a very long investment horizon, you can go for small-cap schemes to achieve your long-term financial goals. One word of caution: sharp dips or extended periods of volatility can test your patience, but stick with your regular investments to build wealth for a long period.

If you are a new investor and don't understand much about mutual fund investing, it's best to steer clear of small-cap mutual fund schemes. If you don't have a strong appetite for risk and are looking to grow your investment without risking too much, you should stick to large-cap and multi-cap schemes.

Don't just fall for these charts for great short-term returns. This is a sure way to lose money. Choose small-cap mutual fund schemes if you have a long-term investment horizon and a high appetite for risk. Keep your investment going or keep it long-term for big returns.

Here are our carefully selected designs for small ornaments.

small cap funds

Best Small cap Mutual Funds to Invest in 2021

  • The Axis Small Cap Fund
  • SBI small-cap fund
  • Kotak Small-cap fund
  • Nippon India Small Cap Fund
  • HDFC Small Cap Fund

If you are interested in learning about our methodology, scroll down to read it.

Our methodology:

  1. Mean rolling returns: Rolled daily during the last 3 years.

  2. Consistency of the last 3 years: the Hurst Exponent, H is used to calculate the consistency of the fund. The exponent of H is a measure of randomness for a NAV series of a fund. High H funds tend to show less volatility compared to low H funds.

  • i) When H = 0.5, the return series is said to be a Brownian geometric time series. This type of time series is difficult to predict.
  • ii) When H <0.5, the string is said to mean-reverting.
  • iii) When H> 0.5, the series is said to be stationary. The higher the H value, the stronger the trend of the series.
  1. Downside Risk: We only considered the negative returns that the mutual fund scheme provided for this measure.

X = Returns below zero

Y = sum of all squares of X

Z = Y / Number of days it takes to calculate the ratio

Downside risk = square root of Z.

  1. Outperformance: measured by Jensen`s alpha over the past three years. Jensen`s Alpha shows the risk-adjusted return generated by the mutual fund scheme relative to the expected return of the market through the Capital Asset Pricing Model (CAPM). An increase in alpha indicates that the portfolio has outperformed the market expected.

Average returns generated by the MF chart =

[Risk Free Rate + MF Beta Chart * {(Average Index Return - Risk Free Rate})

  1. Asset size: For equity funds, the threshold asset size is Rs 50 crore.
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