8 small cap schemes offered more than 40% return in three years

Not long ago, most investors, especially new ones, were investing in small cap mutual funds. However, most investors have been staying away from the small cap category in the last one and a half years. No wonder, considering the category has offered around 2.19% returns in the last one year. The category also faced a lot of volatility in the interim. However, making investment decisions based on the prevailing or short-term conditions could be a grave mistake. Consider for example: eight small cap schemes have offered more than 40% returns in the three-year horizon. The small cap category has offered an average return of 38.60% in three years.

There are 21 small cap schemes that have been in the market for three years. Out of this, eight small cap schemes have offered more than 40% returns. Quant Small Cap Fund, the topper in the category, offered an astonishing 63.44% returns despite the challenging market and economic conditions. Nippon India Small Cap Fund, the second in the performance chart, offered 46.03% in three years.

Here are the small cap schemes that have offered more than 40% in three years.

Scheme Name	3 years returns (%)
Quant Small Cap Fund	63.44
Nippon India Small Cap Fund	46.03
HSBC Small Cap Fund	42.94
Canara Robeco Small Cap Fund	42.75
HDFC Small Cap Fund	41.77
Tata Small Cap Fund	40.91
Kotak Small Cap Fund	40.85
Edelweiss Small Cap Fund	40.05

Source:ACE MF, Returns as on March 20,2023

Small cap schemes are considered risky as they invest in the stocks of very small companies. As per Sebi norms, these schemes are mandated to invest in stocks that are ranked below 250 in terms of market capitalisation. These companies may have corporate governance issues and they can also fold up during challenging phases in the market. That is what makes investing in small cap stocks extremely risky.

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However, these stocks can also reward investors handsomely. If the fund manager succeeds in spotting a company that has great potential, it may be extremely rewarding. These companies can offer very high returns. That is why small cap schemes offer very high double-digit returns (sometimes even three-digit returns) during a bull phase in the market.

However, it is not easy to make money from the small cap category. These schemes can be extremely volatile and they may even post negative returns. Many inexperienced investors lose their nerves in such trying phases. That is why these schemes are recommended only to aggressive investors. ETMutualFunds always ask new and conservative investors to stay away from small cap schemes. Consider investing in small cap schemes only if you have a very high risk appetite, stomach for volatility and a longer investment horizon, say, around 10 years. Note, this exercise is not a recommendation. This exercise was just to tell readers that even though small cap schemes are going through a rough patch, toppers in the category offered more than 40% returns in a three year horizon. Before deciding to invest in small cap schemes, you should consider factors like your risk appetite, investment horizon, goals.

If you are interested in the investing in small cap schemes, here are our recommendations: Best small cap schemes to invest

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