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Some of the best smaller sized equity mutual funds

Mutual Funds

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Mutual Funds article in Advisorkhoj - Some of the best smaller sized equity mutual funds
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Many investors are under the impression that larger the fund size better the prospect of higher returns. This is not always true. There is no doubt that the large funds can boast of great past track record, hence the investor interest in these funds. However, research shows there is no significant correlation between fund size and higher future returns. In fact for certain fund categories like mid and small cap funds, large assets under management (AUM) can act as a constraint. In this blog we have reviewed some of the best performing smaller sized funds. We have selected 10 funds, across different market caps, each with AUM of less than 500 crores and three year annualized returns above 20%. Each of the funds in our selection have been rated Rank 1 or 2 by CRISIL and have at least a 4 star rating from Morningstar.

The table below shows the performance and some other parameters of our selected funds, in ascending order of last 1 year trailing returns. Trailing returns are based on NAVs as on April 15, 2015.

Mutual Funds - Comparison of one year trailing returns of best performing smaller sized funds

We can see in the table above that, while the AUM of these funds is relatively modest, their returns have been quite outstanding. The L&T India Large cap has given 45% trailing returns over the last one year compared to large cap category average returns of 35%. The diversified funds in our selection have given nearly 50% to 75% trailing returns in the last one year, whereas the mid and small cap funds have given nearly 75% to 95% trailing returns in the last one year. The high expense ratio of these funds might be a cause of concern for some investors. The high expense ratio is a consequence of the smaller AUM base of these funds. If these funds are able to sustain their performance and grow their AUM over time, the expense ratios will come down.

One of the most important performance measures of mutual funds are the risk adjusted returns of the fund relative to the benchmark and their peers. The risk adjusted returns of these funds are especially strong relative to the category of funds they belong to. The table below shows the three year returns of these funds and the volatility (measured in terms of 3 year standard deviation of monthly, relative to the fund categories.

Mutual Funds - Comparison of three year trailing returns of best performing smaller sized funds

The colour of the boxes indicates whether the fund has performed better or worse than the category average with respect to the concerned parameters, i.e. returns and volatility. The green coloured boxes indicate that the fund has performed better than the category parameter (return or volatility), while the yellow coloured boxes indicate that the fund has performed worse than the category parameter. We can see that all the funds in our selection outperformed the category in terms of 3 years annualized returns. At the same time, majority of the funds had lower volatility compared to the fund category. While some funds had higher volatility compared to the category, the outperformance in returns versus the category was substantially higher implying very strong risk adjusted performance. For example, while Canara Robeco Emerging Equities Fund had higher volatility versus the mid and small cap funds category (19.6% versus 18%), the 3 year annualized returns of the fund was substantially higher than the category (38% versus 21%). Thus we can see that the risk adjusted performance of these funds have been quite strong.


In this blog we have reviewed some of the best performing small sized funds. Both investors and financial advisors often ignore these funds, since they are relatively lesser known compared to some of their larger and more popular counterparts. However, some of the small sized funds can be great investment options depending upon the financial objectives of the investors.

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Dwaipayan Bose

Dwaipayan leads content production and mutual fund research in Advisorkhoj.com. He is actively involved in business development strategy, driving revenue growth and profitability, delivering superior customer satisfaction and talent development in Advisorkhoj. An alumnus of IIM Ahmedabad, Dwaipayan is a Finance and Consulting professional, with nearly 17 years of management and consulting experience in financial services domain across several geographies. In his previous corporate role, Dwaipayan was the Chief Financial Officer of American Express Global Business Services in India. He also co-founded a boutique consulting start-up to advice companies on business restructuring initiatives like private equity funding, mergers & acquisitions, divestitures, outsourcing and organizational restructuring. Dwaipayan has a strong track record of driving superior financial performance and developing talent in the organizations he has been involved with. He can be followed on his Twitter handle @DBadvisorkhoj.

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