Small-cap, infrastructure and public sector mutual funds enrich investors with a compound annual growth rate of 30% in five years

Mutual Funds Stocks focused on small caps, capex and public sector companies have generated the highest returns over the past five years, reflecting their strong performance on Dalal Street. Of the 21 equity categories, small caps, infrastructure and public sector companies have delivered the highest returns over the past five years, reflecting their strong performance on Dalal Street. PSU funds have delivered a CAGR of over 30% during the period.

Small Cap Funds

Small-cap funds led the performance charts, delivering an average return of 33.55% over the past five years. Around 19 small-cap funds have been in the market for five years. Quantitative small cap fundThe category leader, offered a return of 49.39% over the last five years.
Nippon India Small Cap FundThe largest small-cap fund in terms of assets under management, returned 38.60 per cent in the said period. The Aditya Birla Sun Life Small Cap Fund returned the lowest of around 25.36 per cent in the same period.

“I would not recommend investors to invest more than 8-10% of their portfolio holdings in small-cap funds. Investing in good flex-cap or multi-cap funds will be a good strategy, where the decision to move into multi-cap stocks will be taken by the fund manager. We should do our research and select a good fund manager and then fully trust him to take care of our investments,” advises Rajesh Minocha, Certified Financial Planner (CFP) and Founder, Financial Radiance.

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PSU funds

PSU thematic mutual funds have delivered an average return of 32.58% over the last five years. There were only three PSU funds in the said period. CPSE ETF, the largest and best-performing scheme in the category, delivered a return of 35.64% over the said period.
Invesco India PSU Equity Fund, the oldest fund in the category, returned 32.60% in the period. SBI PSU Fund offered a return of 29.48%.

“Investors entering these funds now should have an investment horizon of 4-5 years. Future return expectations should be based on the annual returns of these funds over the past 5-7 years and not the returns over the past half year,” advises Manish Kothari, co-founder and CEO of ZFunds.

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Infrastructure Funds

Infrastructure sector-based mutual funds have offered an average return of around 30.65% over the past five years. Around 18 infrastructure funds have completed five years of existence in the market. Quant Infrastructure Fund has offered the highest return over the past five years, at 38.92%.

Invesco’s India Infrastructure Fund returned 33.53% in the same period. UTI’s Infrastructure Fund returned the lowest at around 24.87% in the same period.

“The infrastructure sector is set to benefit significantly from increased government capital expenditure, particularly in areas such as transportation, urban development and smart cities. Public-private partnerships (PPPs) and the push for large-scale infrastructure projects are expected to attract private capital and expertise, driving the growth of the sector. Additionally, the focus on renewable energy infrastructure and expansion of electric vehicle (EV) charging networks present long-term opportunities for investors,” said Sagar Shinde, Vice President, Research, Fisdom.

The other 18 equity mutual fund categories that were in the market in the last five years offered a CAGR ranging from 10.49% to 29.73%. International funds gave the lowest CAGR of 10.49% in a similar time period. Large-cap funds gave a CAGR of 19.21%.

Both focused and flexible cap funds delivered a CAGR of 21.21% and 21.76% respectively over the same time period. Midcap funds delivered a CAGR of 29.17% over a similar time period.

One should always keep in mind the risk appetite, investment horizon and objective before taking any investment decision. One should invest in sectoral or thematic schemes only if one has a long-term investment horizon or has in-depth knowledge of the sector to time entry and exit in these schemes. Remember that all sectors or themes may go out of fashion depending on economic conditions. One should not take hasty decisions at such stages.

Small-cap schemes are always considered risky. However, they also have the potential to generate very high returns over a long period of time. The problem is that these schemes are also known for their very prolonged bearish phases. When the market enters a phase of austerity, small-cap segments lose a lot as investors look for safer investment options.

For this reason, ETMutualFunds does not recommend small-cap schemes to new and inexperienced investors. We always recommend investors to gain experience and knowledge before investing in small-cap schemes. We believe that only investors with a high level of risk and volatility tolerance should invest in small-cap schemes. They should also have a long-term investment horizon of, say, seven to ten years.

(Disclaimer:The recommendations, suggestions, views and opinions of the experts are their own and do not represent the views of The Economic Times.

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