Small Cap Mutual Funds invest in smaller companies, typically ranked below 250 on the NSE and BSE. While they may offer potentially high returns, they also carry risk because of how volatile they are. They are ideal for those with a higher risk appetite.
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Name
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AUM
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3Y Returns
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| ₹31,773.73 cr | 19.60 % | ||
| ₹31,773.73 cr | 19.60 % | ||
| ₹3,680.98 cr | 18.73 % | ||
| ₹3,680.98 cr | 18.38 % | ||
| ₹17,806.36 cr | 12.86 % | ||
| ₹17,806.36 cr | 12.86 % | ||
| ₹13,847.33 cr | 16.11 % | ||
| ₹13,847.33 cr | 16.11 % | ||
| ₹5,452.52 cr | 16.48 % | ||
| ₹5,452.52 cr | 16.48 % |
A Small Cap Fund is an equity mutual fund that primarily invests in stocks of small-cap companies. These companies have a market capitalisation of less than ₹5,000 crore and are ranked below the top 250 firms based on market value.
As per SEBI regulations, at least 65% of the fund’s assets must be allocated to small-cap stocks. These funds aim to generate significant returns by identifying and investing in high-growth potential businesses. Small-cap companies are often emerging businesses with innovative products and services that can outperform larger companies if they scale successfully.
However, the risk associated with these funds is higher due to their exposure to smaller companies that may lack financial stability and resilience during economic downturns. Investors should be prepared for short-term volatility and be willing to stay invested for at least 7-10 years to maximise returns.
Small Cap Funds operate by pooling investments from multiple investors and allocating the capital into a diversified portfolio of small-cap stocks. The fund manager actively selects stocks based on growth potential, financial performance, industry trends, and future expansion opportunities.
Since small-cap stocks are more volatile, the fund manager continuously monitors and rebalances the portfolio to mitigate risks while aiming for higher returns. These funds tend to perform well during economic upswings when investor confidence is high and businesses are expanding.
However, during market downturns, small-cap stocks can experience sharp declines, making these funds riskier than mid-cap or large-cap funds. Small Cap Funds are therefore best suited for investors with a long-term investment perspective and a willingness to withstand market fluctuations.
Small Cap Funds invest in companies that have the potential to grow into mid-cap or large-cap firms over time. These funds offer higher capital appreciation opportunities compared to large-cap funds.
Due to their exposure to smaller companies, these funds are more vulnerable to economic downturns, liquidity constraints, and investor sentiment changes. Short-term price fluctuations can be significant.
As per SEBI guidelines, at least 65% of the fund’s assets must be invested in small-cap stocks, ensuring a focused approach to investing in emerging companies.
Since small-cap stocks take time to grow and establish themselves, investors must have a long-term investment horizon of at least 7-10 years to maximise potential gains.
Fund managers actively research and select stocks with strong fundamentals, managing risk by diversifying across industries while capitalising on high-growth opportunities.
These funds focus on small-cap companies with rapid expansion potential. They aim to maximise capital appreciation and are ideal for aggressive investors looking for long-term growth.
These funds invest in small-cap stocks that are undervalued but have strong fundamentals. They seek to capitalise on future price corrections as the market realises their true potential.
Some small-cap funds invest in companies that provide consistent dividends, offering investors regular income alongside capital growth. These funds are suitable for those who prefer a mix of stability and high returns.
These funds invest in small-cap companies within a specific sector or industry, such as technology, healthcare, or infrastructure. They carry higher risk but can provide substantial returns if the sector performs well.
Small Cap Funds are suitable for investors who have a high-risk tolerance and are looking for long-term growth opportunities. These funds invest in small-cap companies, which have the potential for significant expansion but also come with higher volatility. Investors who can stay invested for at least 7-10 years may benefit the most from these funds.
Aggressive investors who are comfortable with market fluctuations may consider Small Cap Funds as part of their portfolio. These funds can also be beneficial for investors looking to diversify their existing investments by adding exposure to high-growth potential companies. Young investors who have a long investment horizon and are willing to take risks may find these funds appealing due to the potential for compounding returns over time.
Since small-cap stocks tend to be more volatile than large-cap stocks, these funds may not be suitable for conservative investors or those looking for short-term stability. Investors should carefully assess their risk appetite before investing in Small Cap Funds.
Visit the Bajaj Broking website or download the Bajaj Broking app from the Play Store or App Store. If you are a new user, complete the KYC process by submitting your PAN card, Aadhaar, and address proof.
Navigate to the Mutual Funds section and search for Small Cap Funds. Compare different options based on performance, fund manager expertise, risk levels, and expense ratios. Use the mutual fund return calculator to estimate potential earnings.
Decide whether to invest through a lump sum investment or a systematic investment plan (SIP). SIPs typically start from ₹500 per month and offer the advantage of rupee cost averaging.
Choose your preferred payment method, such as UPI, net banking, or auto-debit for SIPs. Confirm the transaction and complete your investment.
Monitor the performance of your Small Cap Fund through the Bajaj Broking app. Investors can review their portfolio periodically and make adjustments as needed based on market conditions and financial goals.
Small-cap companies often have greater opportunities for expansion compared to large-cap firms. Investing in these companies at an early stage can provide significant long-term returns.
Many successful large-cap companies started as small-cap firms. Investing in Small Cap Funds allows investors to be part of companies that have the potential to grow into industry leaders over time.
Small Cap Funds can add diversification to an investment portfolio by offering exposure to high-growth sectors that may not be represented in large-cap or mid-cap funds.
These funds are actively managed by professional fund managers who select stocks with strong growth potential. This helps in optimising returns and mitigating risks associated with investing in smaller companies.
Small-cap stocks tend to outperform large-cap stocks during strong market conditions. Investors who stay invested during market uptrends can potentially benefit from high returns.
Small-cap companies are more sensitive to economic downturns and market fluctuations, which can lead to sharp price movements.
These funds tend to have higher price volatility compared to large-cap and mid-cap funds, making them riskier in the short term.
Small-cap stocks often have lower trading volumes, which can make it difficult to sell shares quickly without impacting the stock price.
Many small-cap companies are in the early stages of growth and may face operational challenges that affect their financial performance.
The success of a Small Cap Fund depends on the fund manager's ability to select the right stocks. Poor stock selection can impact returns.
Some Small Cap Funds may have a concentrated portfolio in specific industries, increasing the risk if those sectors underperform.
Small Cap Funds require a long-term commitment, as small-cap stocks take time to grow. Investors should have a minimum investment horizon of 7-10 years to benefit from market cycles.
Since small-cap stocks are highly volatile, investors should assess their risk appetite before investing. These funds are suitable for those who can tolerate short-term fluctuations in pursuit of higher returns.
Evaluating a fund’s historical performance and the expertise of the fund manager can help investors choose the right Small Cap Fund. A strong track record of consistent returns is an important factor to consider.
Actively managed Small Cap Funds may have higher expense ratios. Investors should check the fund’s expense ratio and exit load to understand the overall cost of investment.
Small-cap stocks perform well during economic expansions but may struggle during downturns. Understanding market cycles and timing investments accordingly can help in maximising returns.
Investors should carefully analyse these factors before investing in a Small Cap Fund to ensure that it aligns with their financial goals and risk profile.
Small Cap Funds are highly volatile and best suited for investors with a high-risk tolerance. Due to their exposure to smaller companies, they can experience significant price fluctuations. Investors with a low-risk appetite may find large-cap or diversified equity funds more suitable for stable returns.
Yes, Small Cap Funds carry a high level of risk due to their investments in small-cap companies, which are more vulnerable to market downturns. These funds can deliver high returns during market upswings but may also experience sharp declines in volatile conditions, making them riskier than mid or large-cap funds.
Small Cap Funds are ideal for aggressive investors willing to take higher risks in exchange for potentially greater long-term returns. They are best suited for those with a long-term investment horizon of at least 7-10 years, as these funds require patience to ride out market volatility and benefit from growth opportunities.
Several well-known Small Cap Funds are available in India, such as the Nippon India Small Cap Fund, Quant Small Cap Fund, and Canara Robeco Small Cap Fund. These funds invest in small-cap companies with strong growth potential, aiming to generate high returns over time.
Investing in Small Cap Funds can be beneficial for investors looking for high-growth opportunities over the long term. However, these funds are volatile and require a strong risk appetite. They can be a valuable part of a diversified portfolio but should not be the sole investment choice for risk-averse investors.
Returns from Small Cap Funds vary based on market conditions. Historically, well-performing small-cap funds have delivered annualised returns ranging from 15% to 30% over five years. However, due to high volatility, short-term returns can fluctuate significantly, and investors must be prepared for both gains and losses.
Small Cap Funds come with various risks, including market risk, liquidity risk, and company-specific risks. Small-cap stocks tend to be more volatile and may face sharp declines during economic downturns. Additionally, these companies may have limited financial resources, making them more vulnerable to business failures.
Yes, Small Cap Funds are subject to equity taxation. Short-term capital gains (STCG) on investments held for less than one year are taxed at 15%, while long-term capital gains (LTCG) above ₹1 lakh per financial year are taxed at 10%. Dividends received from these funds are added to the investor’s taxable income.
The investment amount depends on individual financial goals and risk tolerance. Given the volatility of Small Cap Funds, it is advisable to allocate only a portion of the portfolio to them, typically 10-15%. Investors can start with a Systematic Investment Plan (SIP) from ₹500 per month or invest a lump sum based on market opportunities.
Mutual Fund Categories |
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| Debt Funds |
| Equity Funds |
| Hybrid Funds |
| Solution Oriented Funds |
Mutual Fund Sub Category |
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| Large Cap Funds |
| Mid Cap Funds |
| Small Cap Funds |
| Arbitrage Funds |
| Aggressive Hybrid Funds |
| Banking and PSU Funds |
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