What is a Small Cap Fund?
Small cap funds are equity funds, which invest at least 65% of their assets in equity and equity related investments of small cap companies. According to the SEBI regulations, small cap companies are those ranked below top 250th companies in terms of market capitalization.
Why Invest in Small Cap Funds?
- Small cap funds offer a broader universe for investment than large cap, midcap or sector/thematic funds
- Small cap companies offer better growth prospects due to the presence of new/emerging segments growing at a faster pace
- Small cap companies also have greater potential to gain market share due to their new technology or products/services
- Company specific factors impacts the returns of small cap stocks more than macro-economic factors
- Small cap space is a relatively inefficient market with under-owned and under-researched companies
- Lack of awareness and price discovery of small cap companies among market participants gives them better growth potential
- Small-cap stocks tend to be grow faster than large and midcap stocks during economic recoveries
Table of Best Small Cap Funds:
| Fund Name | Returns (% p.a.) | |||
| 1 year | 3 year | 5 year | 10 year | |
| Bandhan Small Cap Fund | 4.55 | 31.10 | 33.46 | – |
| ITI Small Cap Fund | 3.02 | 28.64 | 27.49 | – |
| Invesco India Smallcap Fund | 7.40 | 27.66 | 33.31 | – |
| Quant Small Cap Fund | -5.73 | 26.24 | 37.23 | 20.24 |
| HDFC Small Cap Fund | 3.27 | 24.98 | 32.02 | 19.03 |
| Nippon India Small Cap Fund | -3.09 | 24.84 | 34.53 | 21.40 |
| Franklin India Small Cap Fund | -6.32 | 24.17 | 31.56 | 16.56 |
| Tata Small Cap Fund | -0.92 | 24.01 | 32.40 | – |
| Edelweiss Small Cap Fund | 1.58 | 22.50 | 31.86 | – |
| Bank of India Small Cap Fund | -2.53 | 22.07 | 31.54 | – |
Data as on August 18, 2025
Risk of Investing in Small Cap Funds
- Small Cap stocks tend to be more volatile than large and midcap stocks over the short- to medium term
- Liquidity risk of small cap stocks is higher than those of large and midcap stocks
- Small cap companies tend to be more adversely affected than large and midcap companies during bearish market conditions
Who Should Invest in Small Cap funds?
- Investors aiming to benefit from the higher growth potential and re-rating scope of small cap companies
- Mature long term investors with slightly higher risk appetite and past experience in market volatility
- Those who are able to absorb short term volatility and patiently wait with a time horizon of at least 5 years
- Investors should ideally stay invested in small cap funds for at least 7 years to derive maximum benefit from an entire economic cycle
You may also like:
Best Flexi Cap Funds
Best Large Cap Funds
Best Large and Mid Cap Funds
Best Multicap Funds
Best Mid Cap Funds
Best Tax Saver Funds (ELSS)
6 Comments
Good morning, I want to invest some money in the small cap fund for 5-6 years which is the best fund to give higher return within this period??
Hello Amit,
You can invest in SBI Small Cap Fund or Axis Small Cap Fund. Both the funds have given positive returns in the 5 year period and have outperformed their benchmarks as well.
hello mam, mera sbi mutual fund me 3 sip chal rhi hai, sbi blue chip fund regular growth. sbi focused equity regular growth, sbi magnum regular growth, mam mujhe inme se ek sip bnd krni hai kon si bnd kru aur ek new sip chalu krni hai small cap fund me iske liye kon sa fund accha rhega
Hello Rajat,
You can close the one SIP which is not giving good returns throughout. And, Axis Long Term Equity Fund is a good option for SIP. If you can bear some risk then you should invest in this fund. Axis Long Term Equity Fund has been outperforming its benchmark in the last 7 years.
I am a student and i want to invest small amount of my pocket money in mutual funds so which one is best for me can you please suggest
Hello! Since you want to invest a small amount, you can choose Systematic Investment Plan (SIP) which allows you to make small deposits in a mutual fund scheme at periodic intervals. Also, if you are new to Mutual Fund investments, you can invest in large cap funds such as Mirae Asset Large Cap Fund, Axis Bluechip Fund, SBI Bluechip Fund etc. Large cap funds are comparatively less risky than other equity schemes because they are less affected by market fluctuations.