Category: Analysis

Small cap mutual funds are special types of investment funds that put money into very small companies. In 2024, these funds made impressive gains, with returns over 26.38%. People are excited about them, especially after they received Rs 4,111.89 crore in November 2024.

However, many experts warn that small cap stocks can be risky and may not always do well. While prices are currently high, investing in these funds can help grow your money over time if you are willing to be patient.

According to rules from the Securities and Exchange Board of India (SEBI), small cap funds need to invest in companies ranked lower than 250 in size. They must also put at least 65% of their money into small cap stocks. These smaller companies tend to experience many ups and downs, which makes them riskier than bigger, more established companies.

So, should you invest in these funds? Well, small cap funds have a chance to offer big returns over the long run. For instance, over the last ten years, the average return for small cap funds has been around 19%. But with big potential returns come big risks!

Finding the right companies to invest in can be tough since many are not well-known and can be tricky. It’s important to choose fund managers who know what they are doing and have a good track record, especially during tough times in the market.

Here are a few small cap funds you can think about investing in for long-term growth:

– Axis Small Cap Fund: This fund has been performing in the third quartile for 20 months.
– SBI Small Cap Fund: This one has been in the third quartile for the last nine months.
– Kotak Small Cap Fund
– Nippon India Small Cap Fund

To help you choose the best funds, experts look at several factors, including average returns, consistency, risks during downturns, and how well the fund has done compared to the market.

Remember: Just because a fund did well in the past doesn’t mean it will always do so in the future, so make sure to do your research!

In the last three years, around 15 equity mutual funds have grown by more than 30% each year on average. The data shows that most of the best-performing funds are in the small-cap category, which means they invest in smaller companies.

Out of these funds, the Quant Small Cap Fund stood out by giving an amazing 43.27% return each year. This is the highest among all. Another big player, the Bank of India Small Cap Fund, gave back 33.37% each year, while the Quant Mid Cap Fund returned 33.27%.

The Canara Rob Small Cap Fund also did well, offering 33.25%. Two more funds from Quant Mutual Fund—the Quant ELSS Tax Saver Fund and the Quant Flexi Cap Fund—returned 33.07% and 32.19%, respectively. SBI Contra Fund, one of the oldest funds, provided a decent 30.54% return.

Other funds like Kotak Small Cap Fund and Quant Active Fund performed well with returns of 30.38% and 30.13%. The ICICI Pru Smallcap Fund gave a return of 30.07%.

Overall, other equity funds had returns between 10.72% and 29.96%. This analysis looked at all equity mutual funds available for over three years, considering both growth and regular options. Remember, this information is not advice. Always think about your own risk and goals before you invest.

When you invest in mutual funds, you hope to grow your money over time. But sometimes, you might face emergencies or need cash fast. Selling your investments could hurt your long-term goals, so what can you do? One smart option is to take a loan against your mutual funds (LAMF). This lets you borrow money while keeping your investments.

What is a Loan Against Mutual Funds?

A loan against mutual funds helps you use your mutual fund units to borrow money. Lenders look at how much your mutual funds are worth and lend you a portion of that value. This is a great option because it allows you to get cash instantly without selling your investments, keeping their chances to grow.

It’s like having an overdraft account—you’re charged interest only on the money you actually use. These loans get approved quickly, often within just a couple of days, since your mutual funds act as security for the lender.

How Much Can You Borrow?

The amount you can borrow depends on the type of mutual funds you own. For example:

– Equity mutual funds: You can usually borrow about 50-70% of their value.
– Debt mutual funds: You can borrow up to 80-90%.

Interest rates are lower than other loans, typically between 9% and 14% per year, and your repayment term is flexible—ranging from a few months to a few years. Plus, you still own your mutual funds and can earn dividends while repaying the loan!

How to Get a Loan Against Mutual Funds

Getting a loan against mutual funds is relatively straightforward. Here’s what you need to do:

1. Choose a Lender: Banks, non-banking financial companies (NBFCs), and online platforms offer these loans. Make sure they accept your type of mutual funds as collateral.

2. Apply: Fill out an application and provide details about your mutual fund investments—like your folio numbers and scheme names.

3. Sign an Agreement: You’ll sign a form that allows the lender to claim your mutual funds if you don’t repay the loan.

4. Receive Funds: After signing the agreement, the lender will give you the loan amount.

Benefits of Loans Against Mutual Funds

These loans have many plus points:

– Quick Access to Cash: Get funds without selling your investments.
– Lower Interest Rates: These loans are cheaper than personal loans.
– Flexible Repayment: Decide how long you need to pay back the loan.
– Continue Earning: Keep earning dividends on your mutual funds while you have the loan.

Risks to Consider

While loans against mutual funds can be handy, they also have risks:

– Market Risks: If the value of your mutual funds goes down, the lender may ask you for more collateral or parts of the loan back.
– Limited Access: You won’t be able to sell or switch your mutual funds while they are being used as collateral.
– Default Risk: If you can’t repay, the lender can sell your mutual fund units.

Loans against mutual funds can be a great way to get cash quickly without hurting your investment goals. Just be careful, check your ability to repay, and compare lenders to find the best deal. By understanding these loans well, you can make smart financial choices while keeping your investments safe.