In our previous article, Best Diversified Equity funds for SIP in the last 5 years, we had looked at the top 10 diversified equity funds in terms of 5 year Systematic Investment Plan (SIP) returns. Small and midcap funds are inherently more volatile than large cap oriented funds, but have the potential to provide higher returns in the long term. SIPs take advantage of volatility by averaging out the rupee cost of the units purchased and therefore especially effective for investing in small and midcap funds. Small and midcap funds have outperformed large cap oriented funds in terms of trailing returns over the last 5 year period. See last 1 year, 3 years and 5 years trailing annualized returns for large cap oriented and small & midcap funds in the chart below.

In this article, we will look at the best performing SIPs in small and midcap equity funds in the last five years. For our analysis, we have assumed a monthly SIP amount of र 3,000 made on the 1st of every month. The start date of the SIPs has been assumed to be October 1, 2009. The SIP returns have been calculated as on October 10, 2014. Please note that, for the purpose of our analysis, we have considered regular plans only. We have excluded funds which have an asset base of less than र 100 crores. Here is the list of top 7 small and midcap funds for systematic investment plans, based on the last 5 year SIP returns.

With just a र 3,000 monthly SIP (र 1.8 lacs cumulative over the period) in these small and midcap funds, the investors would have accumulated र 3.6 – 3.9 lacs in the last five years. The SIP returns of these funds are in the range of 27 – 30%. The SIP returns in these funds have beaten the lump sum returns during this period, by taking advantage of the volatility of midcap funds through the mechanism of rupee cost averaging. By investing a fixed amount every month, the SIP investor buys less number of units if the market goes up and more units if the market goes down.

Conclusion

In this article, we have looked at the top 7 small and midcap equity funds in terms of 5 year SIP returns. These SIPs have given very high returns in the range of 27 – 30% SIP returns during this period. Investors should consult with Prajna Capital regarding the suitability of these funds for their SIPs.