Small-cap mutual funds comprise stocks of companies with a smaller market capital. Known for their smaller business sizes, operations, and high growth potential, small-cap companies can deliver an opportunity to generate exponential profits through investment over a long period. However, investment into small capital funds can even prove to be risky making it a perfect choice for investors who can handle an investment risk to a certain extent. With systematic investment plans or SIPs, investors can take the benefit of small consistent investments over a long period in small cap mutual funds. Moreover, they can take the benefit of rupee cost averaging, compounding, and reducing their overall risk of investment into smallcap stocks.
The following article explores the SIP return projections from investment into small cap mutual funds that can help investors make the right decision:
SIP for Small Cap mutual funds and its benefits
Systematic investment plans allow investors to spread their investment risk into smallcap mutual funds over a long period. The risk of market volatility can be mitigated through systematic investment plans. Investors can buy more units of a small cap mutual fund when the market falls and fewer units when the market moves in the upper direction. This helps in averaging the unit price for the small cap mutual fund scheme thereby helping investors to take the benefit of systematic investment plans.
Return projections
A small-cap mutual fund can deliver an average rate of return ranging between 12 to 18%. Moreover, in a bullish market, small-cap mutual funds can even generate returns of up to 30% in a single year. However, due to market volatility, small cap mutual funds can even generate negative returns. Let’s look at an example using the SIP return calculator:
A SIP investment of ₹5000 invested monthly in a small cap fund for 10 years with an annualized return of 15% can generate returns up to ₹7.9 Lakhs. The invested amount can grow to a level of ₹13.9 lakh. On the other hand, if the annual returns increase to 18%, the investment corpus can reach a level of ₹16.6 lakhs in the same period. With the effects of fluctuating market cycles, stock market conditions, and small cap mutual fund schemes selected, the returns can fluctuate immensely. However, through systematic investment plans, investors can take the benefit of market volatility and make their investments into small cap funds effective and more reliable.
Popular Small Cap funds and their SIP returns
Based on their past performance, small cap funds can deliver exponential returns which when compared to other mutual fund schemes are better. Following are some popular small cap funds, as well as their historical SIP, returns that investors can use to project and predict future returns.
Motilal Oswal Small Cap Fund – 52.4%
Axis Small Cap Fund – 28.95%
PGIM India Small Cap Fund – 19.2%
SBI Small Cap Fund – 22.23%
Nippon India Small Cap Fund – 32.89%
Conclusion
Based upon the past records, the future projections of SIP returns from investment into smallcap funds can be protected. However, the future projections largely depend upon the market conditions and small cap fund management. SIP investment into small cap mutual funds can help investors generate great returns however proper precautions are essential through portfolio diversification to attain growth as well as security.