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 | 20.70 % | ||
| ₹31,773.73 cr | 20.70 % | ||
| ₹3,680.98 cr | 19.18 % | ||
| ₹3,680.98 cr | 18.83 % | ||
| ₹17,806.36 cr | 13.09 % | ||
| ₹17,806.36 cr | 13.09 % | ||
| ₹13,847.33 cr | 16.18 % | ||
| ₹13,847.33 cr | 16.18 % | ||
| ₹5,452.52 cr | 16.93 % | ||
| ₹5,452.52 cr | 16.93 % |
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.
The Small Cap Mutual Funds could appeal to investors with a long-term outlook and who are willing to take higher risks. The funds have stocks from small companies that could exhibit greater growth rates, but also more volatility than large 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.
Potential for Growth in Small Cap Mutual Funds is high because they are focused on small-cap stocks that have room to grow. However, their advantages are mostly applicable to those who are willing to be in it for the long run.
There is increased risk associated with Small Cap Mutual Funds as small businesses are more vulnerable to the effects of market instability, slower business operations, liquidity problems, and economic unpredictability.
The investor must evaluate his risk tolerance, investment period, mutual fund performance, quality of portfolio, and expenses before investing in small-cap mutual funds. Such funds may provide growth potential, but it will require patience and selectivity.
Small Cap Mutual Funds are generally considered equity-oriented mutual funds for the purpose of taxation, which are subject to certain provisions. The tax is levied based on the duration of investment and capital gain earned on redemption.
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 |
|---|
| 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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