Last week, we looked at why you should invest in small-cap and mid-cap funds. This week, we’d like to share with you some small-cap funds you should consider investing in and why.

The three funds in this category that we recommend are HDFC Small Cap Fund, SBI Small Cap Fund, and L&T Emerging Businesses Fund.

Why these three funds?
These funds focus on investing in well-managed small companies. The strategy they follow is to identify businesses at an early stage in their life-cycle and give investors the opportunity to grow their investment with them. All the companies these funds look to invest in are identified as ones with reasonable growth prospects, solid financial strength, and dependable business sustainability.

After running our filters, digging into the underlying portfolios, and conducting deep research, we identified these as the best small-cap funds. The mentioned small-cap funds have outperformed the small-cap index as seen in the below image .  The period we considered their performance is 3 years – as some of the schemes went through changes and some had restricted the subscription inflows.

The investment objective
Deliver compounded earnings at a reasonable rate over a five, ten, and fifteen year horizon. This is the destination that the investment managers for these funds look at reaching. These funds will help investors be a part of good businesses that are run well and by trustworthy people. .

How to invest in these funds?
We recommend either Systematic Investment Plan (SIIP) or Systematic Transfer Plan (STP).

The bottom line
Research proves that small-caps have outperformed large-caps in the longer term. They are a proven way to create wealth.



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