In the last few months, there has been a lot of volatility in the stock market, which has affected all categories of mutual funds. Indian equity benchmark indices Sensex and Nifty have shed 14% and 16%, respectively, in the last 5 months. Broader indices like BSE Smallcap and BSE Midcap have crashed over 25% and 22%, respectively.
Among all the major mutual fund categories, the biggest blow has been to small-cap funds amidst the current market mayhem. In the last 1 month, 3 months and 1 year, small-cap funds have performed the worst compared to mid-cap, large-cap, flexi-cap, and multi-cap funds.
In the small-cap funds category, the average return has been (-)11.82% in the last one month, (-)22.11% in 3 months and (-)4.35% in the last 1 year.
In contrast, the mid-cap funds have performed a little better, with an average return in the category at (-)9.95% returns in 1 month, (-)17.81% in 3 months and 0.19% for 1 year. Large-cap funds too have shown some resilience but the average return in this category also remained in the negative zone. The returns have been (-)7.55% in 1 month, (-)11.96% in 3 months and (-)1.33% in 1 year.
Flexi-cap and multi-cap funds
The flexi-cap funds category has seen an average 1-month return at (-)8.53%, 3-month yield at (-)14.95% and 1-year return at (-)0.34%. Likewise, the multi-cap category has seen an average return of (-)9.24% in 1 month, (-)16.43% in 3 months and (-)0.30% in 1 year.
Compared with these above-mentioned categories, this decline in small-cap funds makes it clear that the shares of small companies are most sensitive to market uncertainties and when the market falls, they suffer the most.
No category is safe
If we talk about the last 5 months, the market turmoil has harmed almost all equity funds. All categories of funds have given negative returns during this period. However, the biggest decline has been seen in small cap funds. The reason for this is that these include small and emerging businesses, which prove to be weaker in withstanding market shocks than large companies.
10 worst performing small-cap funds in the last 1 year
1. Quant Small Cap Fund (-9.50%)
2. Sundaram Small Cap Fund (-6.25%)
3. Baroda BNP Paribas Small Cap Fund (-5.67%)
4. HDFC Small Cap Fund (-5.44%)
5. Franklin India Smaller Companies Fund (-4.98%)
6. Aditya Birla Sun Life Small Cap Fund (-4.92%)
7. Union Small Cap Fund (-4.92%)
8. ICICI Prudential Smallcap Fund (-4.73%)
9. HSBC Small Cap Fund (-4.63%)
10. Canara Robeco Small Cap Fund (-2.86%)
(Data: Amfi, Value Research)
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Risks of investing in small-cap funds
High volatility – Shares of small-cap companies usually see intense volatility during market decline.
Future uncertainty – Small-cap companies are still in the early stages of development, so their growth and profits are not stable, which increases the risk in them.
Will investing in small-caps be right?
Although small-cap funds may seem risky when the market is down, they can also give the highest returns during a boom in the market and a strong economy. Small businesses have a lot of growth potential, which can give good profits to investors in the long run. If an investor is investing for the long term and is willing to take high-risk, then small-cap funds can be a great option.
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.