Small-cap index funds are increasingly gaining traction among investors in India, owing to their high growth potential and impressive returns. Over the past 3 years, some funds based on the Nifty Smallcap and BSE Smallcap indices have turned modest investments into significant sums, attracting both seasoned and novice investors. In this article, we will explore the top 5 small-cap index funds that have posted the highest returns over the past 3 years, with a concrete example of a one-time investment of INR 250,000 that grew to INR 381,000 in the No. 1 fund. Find out which ones are these and why they could be a smart choice for your portfolio!
What are small-cap index funds?
Small-cap index funds are passive investment vehicles that track the performance of indices such as the Nifty Smallcap 250 or the BSE 250 SmallCap. These funds invest in companies with small market capitalizations, often characterized by rapid growth but also greater volatility than large-caps. The advantage? Low operating costs (thanks to passive management) and direct exposure to the dynamic small-cap segment of the Indian market.
Fund No. 1: From INR 250,000 to INR 381,000 in 3 years
Among the small-cap funds analyzed, the top-ranked one has shown exceptional performance. A lump sum investment of INR 250,000 made 3 years ago has turned into INR 381,000, resulting in a profit of INR 131,000. This corresponds to an estimated compound annual growth rate (CAGR) of around 15-16%, a result that underscores the potential of these financial instruments. Although the exact details of the fund are not specified, renowned managers such as ICICI Prudential, Motilal Oswal and Nippon India are known to offer top-notch options in this category.
Why do small-cap funds attract investors?
The small-cap market in India is fertile ground for those seeking above-average returns. Small, often expanding companies can offer significant returns when supported by a growing economy like India’s. Additionally, index funds eliminate the need to pick individual stocks, reducing selection risk and active management costs. However, it is important to note that volatility can be a factor: past performance does not guarantee future results.
Top Small Cap Fund Managers in India
Among the best known names in the sector we find:
- ICICI Prudential: Leader in index and thematic funds.
- Motilal Oswal: Specializes in high-yield passive strategies.
- Nippon India: Offers small-cap options that investors love.
These managers probably dominate the top 5 small-cap fund rankings, thanks to their experience and ability to capitalize on the growth of the Indian market.
How to choose a small-cap index fund?
If you are thinking of investing in a small-cap fund, consider these factors:
- Historical Returns: Analyze the CAGR over 3 or 5 years to gauge performance.
- Expense Ratio: A low cost is essential to maximize returns.
- Benchmark Index: Ensure the fund tracks a reliable index such as Nifty Smallcap 250 or BSE Smallcap.
- Risk: Assess your tolerance for volatility, which is typical of small-caps.
An opportunity for 2025
With the current date set at March 19, 2025, the return data reflects a recent and relevant period. Small-cap funds continue to be a popular choice for those looking to diversify their portfolio and ride India’s economic growth. For example, the top-ranked fund has turned INR 250,000 into INR 381,000 in just 3 years, proving how a well-placed investment can make a difference.
Conclusion
Nifty and BSE-based small-cap index funds are a unique opportunity for investors seeking high returns. With the #1 fund generating 52.4% returns in 3 years (from INR 250,000 to INR 381,000), this category deserves attention. However, before investing, consult a financial advisor to ensure it suits your objectives and risk profile. Ready to explore the potential of small-cap funds? Leave a comment or contact us for more information!