Small cap mutual funds primarily invest in small firms, companies worth less than ₹5,000 crores. These funds typically hold a small fraction in large or medium firms but primarily focus on small firms.
Although they are riskier, small cap funds can provide better returns than large-cap or mid-cap funds. However Best Small Cap Mutual Funds , prior to investing, you should know if they suit your investment goals and risk tolerance.
Let’s look at some of the best small cap mutual funds to invest in India.
Best Small Cap Mutual Funds to Invest in India
Here is a list of the top small cap mutual funds to invest in in 2025, based on their past performance, returns,view on telegram and fund management.
1. Quant Small Cap Fund
Quant Small Cap Fund is one of the best small-cap mutual funds. It has given strong returns over the past 5 years. Many investors like it for its smart investment strategy and fast-growing portfolio.
2. Bandhan Small Cap Fund
Bandhan Small Cap Fund has impressed many with its high returns. It is growing fast and has a good record of choosing strong small companies. If you are planning to invest for the long term, this fund could be a great option.
3. Axis Small Cap Fund
Axis Small Cap Fund might not always show fast growth, but it’s known for its long-term stability. The fund is well-managed, and many investors have seen good results by staying invested for 7–10 years.
4. Tata Small Cap Fund
Best Small Cap Mutual Funds Tata Small Cap Fund has also shown strong results in recent years. Large cap mutual fund It focuses on quality small businesses with high growth potential. If you are building a long-term portfolio, this fund might help you reach your goals.
5. HDFC Small Cap Fund
HDFC small cap fund has performed well on a long term basis with an effective fund manager and a good team. The fund is somewhat uncertain in the short term but has a great track record over a few years and thus is liked by many investors.
6. HSBC Small Cap Fund
HSBC’s small cap fund is gaining attention for its strong performance. It has picked some smart companies and delivered good returns. It is another option for long-term investors who want growth and can handle market ups and downs.
7. Bank of India Small Cap Fund
Though not as well-known as some others, Bank of India’s small cap fund is delivering competitive returns. It is a solid pick for those who want to try something different and benefit from smart stock choices.
8. Invesco India Smallcap Fund
This fund has shown steady growth over the years. It focuses on good-quality small companies and has given reliable annual returns. It is a good mix of risk and reward for long-term investors.
9. SBI Small Cap Fund
One of the most trusted names in India’s mutual fund space, the SBI Small Cap Fund has been a strong performer for many years. It offers steady growth and is ideal for investors who want to stay invested for the long haul.
10. Franklin India Small Cap Fund
Best Small Cap Mutual Funds Franklin’s small cap fund is another top choice, known for competitive returns and a stable investment approach. It has done well across different time periods and is suited for long-term growth plans.
All the above funds have recorded good past performance, effective fund management, and the ability to enable you to multiply your assets.
How Are Small Cap Funds Taxed?
Tax on small cap mutual funds depends on how long you keep your investment:
- Short-Term (less than 1 year): You pay 20% tax on the profit (called Short-Term Capital Gains or STCG).
- Long-Term (more than 1 year): Gains up to ₹1.25 lakh per year are tax-free. If you earn more than that, the extra amount is taxed at 12.5% (called Long-Term Capital Gains or LTCG).
Who Should Invest in Small Cap Funds?
Investors Looking for Long-Term Growth
If you are willing to stay invested for at least 7 years, small cap funds can give great returns over time. But since they can be very volatile, you should only invest a small part of your portfolio in them.
Investors With a High-Risk Appetite
Small cap funds are best for those who are okay with taking more risk. These companies can grow fast, best flexi cap mutual funds but can also be affected by market changes easily. So, only choose small cap funds if you can handle big price changes and are aiming for big rewards in the long run.
How to Invest in Small Cap Mutual Funds?
Here is how you can invest in the best small cap mutual funds:
For Desktop Users:
- Click “Invest” next to your chosen fund.
- Scan the QR code to download the app.
For Mobile Users:
- Tap Invest on the fund you like.
- Open the app and sign up or log in.
- Finish your KYC (Know Your Customer) process.
- Search for the fund.
- Choose lump sum or SIP (Systematic Investment Plan).
- Enter your investment amount.
- Add your bank details and confirm.
That is it! Your investment is complete.
Should You Invest in Small-Cap Mutual Funds?
To decide if small-cap mutual funds are right for you, first check if they match your personal financial goals.
1. Think About Your Goals
The small cap funds would be useful when your requirements are long-term, like saving towards your old age, buying your house, or saving to educate your child. Such funds suit best those people who are ready to keep their investments over a long period, working at 7-10 years.
2. Add Variety to Your Portfolio
Already invested in large-cap funds like Nifty 50-based mutual funds? Adding a small cap fund gives your portfolio a new layer of growth by investing in emerging companies that might become tomorrow’s leaders.
3. Know Your Risk Limit
Small organizations tend to be more responsive to the changes in the market, and this implies that your investment can either rise or fall rapidly. In case you are comfortable with immediate costs and rewards and are hunting long-run returns, small-cap funds can be suitable for you.
Things to Consider Before Investing in Small Cap Funds
Before you invest, take a look at these important points:
1. Risk Level
Even the best small cap mutual funds come with high risk. Choose funds that have performed better than the benchmark and other similar funds. This can help you reduce the risk a bit.
2. Returns
These funds have the potential to give great returns, even though they’re risky. If you don’t invest in them, you might miss out on big growth opportunities.
3. Cost of Investment
Best Small Cap Mutual Funds Every mutual fund charges an expense ratio (a small fee). For small cap funds, SEBI allows a maximum of 2.50%. Make sure to choose a fund where the returns after cost still make sense for you.
4. Past Performance
Look at how the fund has performed in the past 4 to 5 years. This tells you how the fund manager handled good and bad markets.
How to Choose the Best Small Cap Mutual Funds?
Here are some important numbers (called metrics) you should check before picking a Best Small Cap Mutual Funds :
- Beta – Shows how risky the fund is compared to the market.
- Alpha – Tells you how much extra return the fund gives.
- Sharpe Ratio – Measures return compared to total risk.
- Sortino Ratio – Measures return compared to downside risk.
- Expense Ratio – Tells how much you pay the fund every year.
- Standard Deviation – Shows how much the fund’s returns move up and down.
- XIRR – Tells you the exact return if you invest in parts (like SIP).
- Rolling Returns – Tells how consistent the fund is over time.
- CAGR (Compound Annual Growth Rate) – Shows average annual return.
Best Small Cap Mutual Funds Compare different funds using these metrics to make a smart choice. Ensure that the fund is suitable for your goals and risk before investing.
