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Top 10 Mutual Funds for Sip to Invest in 2023

    In the world of mutual funds, small-cap funds have taken the spotlight in recent times. However, a peculiar phenomenon has emerged. Most small-cap funds have halted lump-sum investments, allowing only Systematic Investment Plans (SIP). This shift is due to the exceptional returns seen in small-cap funds over the past year, particularly in the Nifty Small Cap 100 index, which has seen a remarkable gain of nearly 15%. In this article, we will explore the Top 10 Mutual Funds for Sip to Invest in 2023.

    Top-Performing Small Cap Funds

    1. HDFC Small Cap: 43.71% returns
    2. Kuant Small Cap: 40.97% returns
    3. Franklin India Smaller Companies: 39.69% returns
    4. Nippon India Small Cap: 38.74% returns
    5. Tata Small Cap: 37.57% returns
    6. ITI Small Cap: 35.7% returns
    7. India Small Cap and Agendawith Small Cap: 31.73% returns
    8. HSBC Small Cap: 31.68% returns
    9. Sundaram Small Cap: 31.5% returns
    10. Bank of India Small Cap: 30.04% returns

    It’s important to note that these figures change daily in response to market fluctuations, but the overall trend is clear. Small-cap funds have garnered significant interest from investors, accounting for 35% to 40% of total mutual fund inflows in 2023, a substantial increase from previous years.

    Also Read: How to Find the Best Savings Account in India

    The Valuation Bubble

    This massive influx of investments into small-cap funds has raised concerns about inflated valuations. The rapid influx of capital is not always aligned with the fundamental growth of the underlying companies. In essence, lump-sum investments have contributed to a valuation bubble. As a result, fund managers have decided to restrict lump-sum investments in these funds.

    Understanding Small Cap Funds

    Before delving into the top small-cap funds, let’s clarify what sets small-cap funds apart from large and mid-cap funds. Small-cap companies constitute the vast majority of listed firms, comprising approximately 95% of all listed companies, excluding the top 250. Despite their numerous presence, these companies collectively make up only 18% to 20% of the market capitalization of all listed firms.

    Small-cap stocks are known for their volatility, and this volatility necessitates a crucial role for fund managers in managing small-cap funds. Furthermore, the Net Asset Value (NAV) of small-cap funds can fluctuate dramatically in the short term, sometimes dropping by as much as 50% to 60%. It’s important to emphasize that while this volatility can be intimidating, the key to success in small-cap funds lies in maintaining a long-term investment horizon.

    Top Small Cap Funds for 2023

    Selecting the best small-cap funds goes beyond merely chasing high returns. One should consider a fund’s long-term performance, fund size, expense ratio, and risk profile. Here’s a breakdown of some of the top small-cap funds for 2023:

    Fund NameAUM (Asset Under Management)Expense Ratio
    Kotak Small Cap Fund12,439.62Cr0.43%
    HDFC Small Cap Fund₹23,251 Crores0.75%
    Nippon India Small Cap ₹37,374 Crores0.72%
    ICICI Small Cap Fund₹6,054 Crores0.7%
    SBI Small Cap Fund₹21,320 Cr0.69%
    Quant Small Cap Fund₹9,089 Crores0.77%

    These funds have shown a consistent track record, and their expense ratios are within an acceptable range for small-cap funds. It’s worth noting that portfolio turnover ratios vary among these funds, reflecting the different strategies employed by fund managers.

    Choosing the Right Small Cap Fund

    The choice of a small-cap fund depends on your risk appetite and investment horizon. If you’re an aggressive investor and can tolerate high risk, consider Kotak Small Cap or Quant Small Cap. For those willing to take even more risk, HSBC Small Cap and Kotak Small Cap are potential options. However, if you have a low-risk tolerance, it might be wiser to stick with large-cap funds or index funds.

    In any case, the allocation to small-cap funds should not exceed 30% of your portfolio. Your investment decisions should align with your financial goals and risk tolerance.

    How to Choose Safe Sips to Invest

    In the dynamic world of mutual funds, small-cap funds have become a favored choice for investors, thanks to their remarkable returns in recent years. However, it’s crucial to approach small-cap investments with caution due to their inherent volatility. A long-term investment horizon of at least 10 years is advisable.

    Selecting the right small-cap fund involves considering factors such as historical performance, fund size, expense ratio, and risk profile. Choose a fund that aligns with your risk tolerance and financial goals. In this ever-evolving market, staying informed and making well-informed investment decisions is key to success.