To identify small cap companies consistently we will use CRISIL’s consistent performing funds along with ValueResearchOnline’s data to find the best small cap fund of 2017.
Money is in small cap. So this is the most important part of the best mutual fund series where if you don’t select the right fund, the performance can vary significantly from 16% to over 40% annually. So it is very important to select the right small cap fund.
When you are opting for a small cap fund and small companies, the focus is on growth and so we select a fund has been able to do that for an elongated period of time. The selection of best fund is very different than what we have done for best large cap funds or best mid-cap funds.
When I was doing the research to find the best small cap fund I found that considerable amount of small cap funds are closed ended.
What is Closed Ended Fund Vs Open Ended Fund?
Open-ended funds allow buying and selling of mutual fund units directly from the fund house without any time restriction. Whenever you want, you can purchase an open-ended fund.
Whereas a close ended fund allows the purchase of units only when it was offered by the fund house at the time of new fund offer. After the NFO time is over, it can only be purchased from the secondary market as and when someone else redeems units. Behaviour is much similar to an IPO.
The closed-ended fund can have availability issues depending on the liquidity and units of the fund available for trade and so will only focus on open ended small cap funds.
The Top Open Ended Small Cap Funds
There aren’t many open ended small cap funds and so I used ValueResearchOnline to get all the open ended small cap funds.
The process is for identifying small cap fund is different than large cap funds because in large cap fund we use a benchmark for right kind of exposure to large cap companies but for a small cap fund, the benchmark focus is not that important because we want to spot better growth opportunities.
A consistent history of research from the fund house is much much more important than anything else.
We will be investing only in direct funds but for returns sake we will use regular funds numbers because direct fund concept was introduced only in Jan 2013.
| Funds | Returns | ||
| 1 Year | 3 Years | 5 Years | |
| DSP BlackRock Micro Cap Fund | 39.03 | 46.04 | 30.38 |
| L&T Emerging Businesses Fund | 37.78 | New Fund | |
| Franklin India Smaller Companies Fund | 31.89 | 37.72 | 30.50 |
| Canara Robeco Emerging Equities Fund | 29.25 | 39.03 | 27.33 |
| HDFC Small Cap Fund | 26.72 | 24.28 | 18.38 |
| Indiabulls Value Discovery Fund | Very Low Asset Under Management | ||
| SBI Magnum Midcap Fund | Major investment in midcap and large cap | ||
| SBI Small & Midcap Fund | Suspended Temporarily | ||
| Union Small and Midcap Fund | Too low 1 year returns to consider | ||
We have been focusing all data from ValueResearchOnline till now but now it’s time to make use of crisil’s top consistent performing funds list which lists the following funds as the most consistent funds.
- Birla Sun Life India GenNext Fund
- Birla Sun Life Top 100 Fund
- DSP BlackRock Micro Cap Fund
- Franklin India High Growth Companies Fund
- Franklin India Smaller Companies Fund
- ICICI Prudential Exports and Other Services Fund
- Principal Emerging Bluechip Fund
- SBI Blue Chip Fund
- UTI MNC Fund
Among the small cap fund we find only 2 Mr. consistent funds and they become our best small cap funds for 2017.
Best Small Cap Funds
1. DSP BlackRock Micro Cap Fund
DSP BlackRock is a very consistent fund house catering to mid cap and small cap funds and DSP BlackRock Micro Cap Fund has given CAGR of 30% for 5 years which is awesome returns and has been a consistent outperformer.
A must fund for every portfolio and aggressive investor should allocate a lot more towards this fund.
2. Franklin India Smaller Companies Fund
If you aren’t with DSP BlackRock, you have to be with Franklin.
Similar returns for a 5 year period and is making DSP BlackRock run for its share of the market in the small cap category.
3. L&T Emerging Businesses Fund
Though the fund is new, it has shown good promise in 1-year returns. It was launched in May of 2014 and so will complete 3 years in May of 2017. Nav is already above ₹19 in less than 3 years which means it is doing a lot more than 25% CAGR and can even be considered.
Still, my preferred choice will be DSP BlackRock Micro Cap Fund and Franklin India Smaller Companies Fund in all possible circumstances.
Final Thoughts
It is not an endorsement that you invest only in the above funds but the emphasis is on the process that I followed to choose the best small funds for 2017 where I selected the top performing funds and ranked them based on the consistent history of selecting the right small cap companies.
Between Canara Robeco Emergin Equities and L&T Mid Cap, which one will be better for mid cap space
For Midcap it has to be L&T Midcap because Canara Robeco Emergin Equities is a small cap fund and not a midcap.
They changed the strategy of their fund around 8-9 months back and made it mid cap, that is also reflected in the fact that the small cap portion is now only 16% in line with that of L&T Mid Cap. They had sent out official communications to all unit holders and they had also published it in the press.
If they have changed it, still the returns of the past are for the small cap fund and so very tough to judge it. Still checking their portfolio, the are underweight on financial and overweight on automobiles which is good. If you ask me, I will go with traditional midcap fund where we have the performance of the past to judge things.
Thanks my assessment was also on similar lines despite the slightly more attractive returns of Canara Robeco Emerging Equities Funds.
among reliance small cap and l&T emerging business which one is better?
I will choose L&T Emerging Business Sonu
Hi Shabbir
Franklin Templeton Smaller Companies is a large fund of 6,283 Cr with turnover ratio of 12%
Can it’s size impact future returns?
Size is one of the tests for small cap funds : https://www.valueresearchonline.com/story/h2_storyView.asp?str=31890
Yes, it can Deepak. Some midcap and smallcap funds stopped accepting new investment for the same reasons. Funds manage large amount, need to be buying companies having large equity and floating and can’t go with very small companies and so can be impacted.
Thanks Shabbir for the timely response to my query.
The pleasure is all mine Deepak.
Even the DSPBR Micro cap is suspended for new investments
Too much domestic liquidity chasing good funds. Good for the market but it also means market will be driven purely by liquidity
Nice article sir:
i am investing in below SIP Please take a view on it:
1.Kotak Select focus Fund : 1000
2.ICICI Prudential Balanced Advantage Fund – Growth : 1000
above sip are started from two years
3.Axis ELss : 1500 started from four years
4.Mirae Asset Emerging Bluechip Fund : 1500 started from 5 months.
Please look my portfolio and suggest changes.
my investment horizon is 8-9 years.
Thanks
All are good funds and I don’t see a need for change.
You missed mentioning the Reliance Small Cap fund and I am planning to invest in the same. What would you suggest? Could it be a better option than DSP BR Micro Cap or Franklin India Smaller Companies Fund
Pancham, I used a different process and so Reliance Small Cap fund did not form the part of the process because it is not ranked that high by CRISIL but if you follow some other process and find that Reliance Small Cap Fund can outperform, you should be fine going with that fund.
It is not about selecting the fund that I suggest and that is what I have mentioned in the final thoughts. It is more about the process and you can use any of the process I used for large cap to even on small cap fund.
Regarding DSP Microcap they have stopped fresh flows to the fund.
Will this affect the performance and should an investor continue to SIP in this fund
Can you please clarify more on this and what effect it will have on the invested amount?
As of now the fund is not accepting any new money and is suspended temporarily. The reason given is new funds coming into the fund will impact the returns of the existing investors. Looks like a similar case of SBI Small & Midcap and it is better as of now to invest in the Franklin India Smaller Companies Fund
Next in line are multicap funds for your expert analysis.
Ohh ok. I will try to add that as well. had no plans for multicap though but has added to the que now.
Sorry Shabbir,I wrongly quoted a midcap.
No Worries.
Your selection of mid cap is very good.You have omitted Mirae asset emerging bluechip fund from your list.Any reason?
You have left a comment on small cap fund article and referring to midcap list and midcap fund which is here https://shabbir.in/best-midcap-fund-2017/ and it is not avoided among my top pick of midcap fund. Infact it is one of my preferred choice of fund along with HDFC Fund.
Tks Sir.
Thought ful process of checking Crisil consistent funds.It really helps.
I am already investing DSP MICROCAP.
At present I am investigating in all three funds suggested by you.
Equity MF allocation as follows.
1.Mirae Opportunity 35%
& Kotak Select Focus 35%
2.Mirae Emg Blue Chip 20%
3.DSPBR MICRO 10%
Tks for sharing thoughts.
Pravin
Glad you like the analysis and nice selection of funds.
Thanks Shabbir, I was eyeing DSP Micro Cap Fund for last few months.
Now, after reading this, I just started a SIP.
Glad this article was helpful and don’t forget to share it with people you find it can be helpful and also on social media.
Thanks shabbir for good analasys.
The pleasure is all mine Ramana
Thank you very much Shabbir. The much awaited small cap MF suggestion.
DSP was also on my watchlist for a long time.
Yes awesome fund but Franklin is not bad either.