Systematic investment plan or SIP route of investing has been one of the most effective ways of creating wealth by investing in small cap mutual funds. Some of such funds have shown brilliant performance through which small monthly contributions have been collected to huge corpus over 15 years.
High-Performing Small-Cap Mutual Funds
- SBI Small Cap Fund: Founded in September 2009, 15 years in the investment period it has achieved 23.18% average annual return. An SIP of ₹10000 that a person began 15 years ago would possibly be worth around ₹ 1.27 crore today but with a total investment of ₹ 180000 only.
- DSP Small Cap Fund: It was launched in June 2007 and has been recording an average return of 21.65% yearly. Fixed deposits that received ₹10,000 every month for 180 months to create a consistent investment, have risen to roughly ₹1.10 crore.
- Quant Small Cap Fund: They have boasted an average annual compounded return of 21.71% over Fourteen years. The situation would have been different if an investor had been pouring monthly Systematic Investment Plan (SIP) of ₹10,000 into this fund; in the same period, it would have ideally swelled to around ₹1.10 crore.
Off-Benefit of SIP in Small-Cap Funds
– Rupee Cost Averaging: It provides investors with an opportunity to repurchase more units at cheap prices and lesser units at higher prices hence acting as a cycling cost average.
– Compounding Benefits: Consistent with the concept of compound interest, several small systematic investments made over time proved to create greatly enhanced returns.
– Disciplined Investment Approach: SIPs minimise fluctuations on the market and emotions as they encourage steady investing.
For the Investors
This is, of course, true, and it is important to remind investors of the fact that even though these funds delivered a strong performance in the past this does not mean that the same pace of growth will be replicated in the future. Small-cap funds are comparatively risky, and the risk factor on these funds is even higher than those of large-cap or diversified funds.
Investors should Consider:
Assess Risk Tolerance: Having a clear understanding of risk tolerance of the individual investor should match the risk of the investment in the fund.
Conduct Due research: Study the companies in fund’s portfolio, the fund managers and their experience, and growth.
Consult Financial Advisors: Consult an expert to make sound choices about investment from which you can select one suitable to your needs and financial goals.