List of Top SmallCap Mutual Funds in India: Should You Invest in Small Cap Funds?
Small Cap Mutual Funds are a category of mutual funds that focus on investing in the stocks of small-cap companies. If you’re looking for investment options that offer the potential for high returns and are willing to embrace a degree of risk, small-cap funds might be an intriguing prospect. Therefore, let’s explore the world of small-cap mutual funds, benefits, risks, and how you can fit it into your investment portfolio. Let us begin by learning more about the top 10 small-cap mutual funds in India and small cap mutual funds meaning.
Top 10 Small Cap Mutual Funds in India
To understand small cap mutual funds better, consider reviewing the top small cap mutual funds for investment in 2024.
| Smallcap Funds | Fund Size (in Cr)) | Returns (p.a) |
|---|---|---|
| Motilal Oswal Small Cap Fund | 3,166.26 | + 49.56 |
| Bandhan Small Cap Fund | 9,248.28 | + 46.15 |
| LIC MF Small Cap Fund | 411.35 | + 41.83 |
| Invesco India Smallcap Fund | 5,842.20 | + 39.87 |
| ITI Small Cap Fund | 2,438.95 | + 37.34 |
| Bank of India Small Cap Fund | 1,613.36 | + 33.37 |
| Tata Small Cap Fund | 9,572.45 | + 32.89 |
| HSBC Small Cap Fund | 17,237.34 | + 31.42 |
| Mahindra Manulife Small Cap Fund | 4,269.25 | + 30.53 |
| UTI Small Cap Fund | 4,650.65 | + 29.17 |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.
Note: The data on the list is from 26th December 2024. This data is derived from the Tickertape Mutual Funds Screener.
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
What is Small Cap Mutual Funds?
Small Cap equity funds invest in the smallest companies in India. These typically have a smaller market capitalisation, representing their total market value, in comparison to large-cap and mid-cap companies. These funds offer investors an opportunity to participate in the growth potential of smaller, emerging companies, which often have untapped potential for significant expansion.
While smallcap stocks can be inherently more volatile, small cap MF can be an attractive choice for those seeking long-term capital appreciation and are willing to accept a higher level of risk in their investment portfolios.
Overview of Top 10 Small Cap Funds in India
Here is a brief overview on the top mutual funds from our list of small cap mutual funds above:
Motilal Oswal Small Cap Fund
Motilal Oswal Small Cap Fund is a growth-oriented small-cap equity mutual fund that focuses on identifying high-potential small-cap stocks for long-term wealth creation. As of 26th December 2024, the fund has an assets under management (AUM) of Rs. 3,166.26 cr. and delivered an absolute return of 49.56% over the past year.
Bandhan Small Cap Fund
Bandhan Small Cap Fund targets small-cap companies with strong growth prospects, aiming to generate significant long-term capital appreciation. As of 26th December 2024, the fund’s AUM stands at Rs. 9,248.28 cr., with an absolute return of 46.15% in the past year.
LIC MF Small Cap Fund
LIC MF Small Cap Fund seeks to achieve long-term capital growth by investing in a diversified portfolio of small-cap companies across various sectors. As of 26th December 2024, the fund manages an AUM of Rs. 411.35 cr. and recorded an absolute return of 41.83% over the last year.
Invesco India Smallcap Fund
Invesco India Smallcap Fund focuses on small-cap stocks with robust growth potential, aiming for consistent long-term returns. As of 26th December 2024, the fund has an AUM of Rs. 5,842.20 cr. and delivered an absolute return of 39.87% in the previous year.
ITI Small Cap Fund
ITI Small Cap Fund invests in small-cap companies with strong fundamentals and growth prospects, aiming to generate superior risk-adjusted returns over the long term. As of 26th December 2024, the fund has an AUM of Rs. 2,438.95 cr. and an absolute return of 37.34% in the last year.
Bank of India Small Cap Fund
Bank of India Small Cap Fund aims to create long-term wealth by investing in a diversified portfolio of small-cap companies with significant growth potential. As of 26th December 2024, the fund manages an AUM of Rs. 1,613.36 cr. and delivered an absolute return of 33.37% in the past year.
Tata Small Cap Fund
Tata Small Cap Fund focuses on investing in small-cap companies across various industries, targeting long-term capital appreciation. As of 26th December 2024, the fund has an AUM of Rs. 9,572.45 cr. and an absolute return of 32.89% over the last year.
HSBC Small Cap Fund
HSBC Small Cap Fund invests primarily in small-cap companies with the potential for high growth, aiming to provide long-term capital appreciation. As of 26th December 2024, the fund has an AUM of Rs. 17,237.34 cr. and recorded an absolute return of 31.42% in the previous year.
Mahindra Manulife Small Cap Fund
Mahindra Manulife Small Cap Fund seeks to provide long-term capital appreciation by investing in a well-diversified portfolio of small-cap stocks. As of 26th December 2024, the fund’s AUM is Rs. 4,269.25 cr., and it delivered an absolute return of 30.53% in the last year.
UTI Small Cap Fund
UTI Small Cap Fund invests in small-cap companies across various sectors, focusing on long-term wealth creation through a diversified equity portfolio. As of 26th December 2024, the fund manages an AUM of Rs. 4,650.65 cr. and achieved an absolute return of 29.17% over the past year.
How to Invest in Small Cap Funds?
Investing in good small cap mutual funds can be a straightforward process, if you follow these steps:
- Choose a Small Cap Fund: There are many different small cap funds available, so it is important to do your research and choose a fund that is right for you. You can consider factors such as the fund manager’s track record, the fund’s investment strategy, and the fund’s expense ratio.
- Open a Mutual Fund Account: If you don’t already have a mutual fund account, you will need to open one with a mutual fund distributor or an online investment platform.
- Invest in the Fund: Once you have opened a mutual fund account, you can invest in the small cap fund of your choice. You can invest a lump sum amount or you can start a SIP (Systematic Investment Plan).
- Monitor Your Investment: It is important to monitor your investment regularly and make adjustments as needed. For example, you may need to rebalance your portfolio or switch to a different fund if the fund you are invested in is not performing well.
However, if you’re confused about which stocks to pick, you can explore smallcases:
- smallcases are readymade portfolios of stocks/ETFs, that are based on a theme idea or strategy
- They’re created and managed by SEBI-registered experts
- smallcase.com offers over 500+ stock portfolios, created by 180+ managers
- Some of the popular smallcases among new investors are as follows:
Disclosures for aforementioned smallcases
Features of Small Cap Mutual Funds
Here are the features of the best small cap mutual funds to invest in 2024.
High Return Potential
Small cap mutual funds invest in small cap companies, which have the potential to deliver high returns. However, small cap companies are also more volatile and riskier than large-cap companies. Investors looking for options like the best small cap mutual fund 2024 or high return small cap mutual funds should consider these factors carefully.
Investment Horizon
Small cap mutual funds are suitable for investors with a long-term investment horizon (5 years or more). This is because small cap companies need time to grow and mature, making them a viable choice for those seeking the best small cap funds for 2024 or the best small cap fund to invest in 2024.
Diversification
Small cap mutual funds can help you diversify your portfolio. They invest in a variety of small cap companies from different sectors, which can also include funds such as the india small cap fund direct growth or small cap fund direct growth options.
Liquidity
Small cap mutual funds are generally liquid, meaning you can redeem your units at any time. However, there may be some restrictions on redemption during market volatility, which is important for those considering the top 5 small cap mutual funds 2024 or the best small cap SIP to invest in 2024.
How Do Small Cap Mutual Funds Work?
According to the current SEBI regulations, Small Cap Equity Funds are required to allocate a minimum of 65% of their assets to the equity stocks of small-cap companies. Small-cap companies encompass all publicly listed firms whose market capitalisation falls below that of the 250 largest companies traded on the Indian stock exchanges.
Best small-cap funds focus on investing in small companies, offering the potential for significantly higher returns. However, these funds, including the best small-cap mutual funds 2024, are prone to higher volatility. To manage this risk, investors should allocate a modest portion of their portfolio to small-cap equity funds, such as the top 5 small-cap funds or best small-cap mutual fund 2024.
Factors to Consider Before Investing in Small Cap Funds
Before small cap investing in the best small cap mutual funds, there are a few factors that you should consider:
Risk
Small cap funds are riskier than large cap and mid cap funds. This is because small cap companies are more volatile and have a higher chance of failure. It’s worth evaluating whether you should opt for options like the best small cap mutual funds to invest in 2024 or best smallcap funds in India.
Return Potential
Small cap funds have the potential to deliver higher returns than large cap and mid cap funds. However, it is important to remember that past performance is not indicative of future results, even for the top 5 small cap mutual funds or best smallcap funds in India.
Investment Horizon
Small cap funds are best suited for investors with a long-term investment horizon (5 years or more). This is because small cap companies need time to grow and mature, making options like the best small cap fund for 2024 or best small cap SIP to invest in 2024 suitable choices for long-term growth.
Fund Manager’s Track Record
It is important to choose a small cap fund with a fund manager who has a good track record. Funds such as the best small cap mutual funds for 2024 or best small cap funds 2024 often highlight this as a key criterion for success.
Expense Ratio
The expense ratio is the fee charged by the fund manager. A lower expense ratio will leave you with more money in your pocket, making options like the best small cap funds to invest in 2024 or high return small cap mutual funds appealing for cost-conscious investors.
Who Can Invest in the Best Mutual Fund Small Cap?
Smallcap funds can be suitable for the following range of investors:
- Have a High Risk Tolerance: Smallcap funds can be more volatile, making them ideal for those comfortable with higher investment risks.
- Have a Long-Term Investment Horizon: These funds can be the best for investors with a long-term perspective, allowing them to ride out market ups and downs.
- Seek High Growth Potential: Individuals looking for the potential of significant capital appreciation may benefit from small cap mutual funds.
- Value Diversification: Investors who wish to diversify their portfolios and reduce concentration in larger companies can consider small-cap investments.
How to Select Good Small Cap Mutual Funds to Invest in?
Selecting the right small cap mutual funds is thrilling in the stock market. Here’s how you can find the best ones to invest in:
- Define Your Goals: Start with a clear understanding of your financial objectives. Are you aiming for growth, income, or a combination? This will guide your selection.
- Risk Tolerance: Assess your risk tolerance. Small Cap Funds can be more volatile, so ensure it aligns with your comfort level.
- Performance History: Review the historical performance of the funds you’re considering. While past performance isn’t everything, it provides valuable insights.
- Fund Manager Expertise: Get to know the fund manager. Their experience and track record in managing small-cap investments are crucial.
- Consistency: Look for funds with consistent performance across different market conditions. Funds that weather market storms well are often good choices.
How are Returns on Smallcap Mutual Funds Calculated?
Returns on Small Cap Mutual Funds are calculated based on the change in the net asset value (NAV) of the fund over a specific period. The NAV represents the per-unit market value of the fund and is determined by the value of the underlying assets (small-cap stocks) minus any liabilities.
Formula:
Returns Percentage = [(Final NAV – Initial NAV) / Initial NAV] * 100
The formula for calculating the Returns Percentage consists of the following components:
- Final NAV: This is the final Net Asset Value of the investment or asset at the end of the specified period.
- Initial NAV: This is the initial Net Asset Value of the investment or asset at the beginning of the specified period.
- Returns Percentage: This is the result of the calculation, representing the percentage change in the value of the investment from the initial value to the final value.
Taxation on Smallcap Mutual Funds as per the Union Budget 2024-25
Smallcap mutual funds are taxed according to their asset allocation and holding period. Being aware of these tax implications is essential for making informed financial decisions. The Union Budget for 2024-25 has made significant changes to the taxation on equity mutual funds. Here we have listed these changes, along with the revised tax rates for equity mutual funds:
Short-Term Capital Gains Tax
Any gains made when holding equity mutual funds for less than 12 months are considered short-term capital gains. The Union Budget 2024-25 increased the tax rate on these gains to 20%. The STCG tax rate was previously 15%.
Long-Term Capital Gains Tax
For equity mutual funds held for over a year, gains are classified as long-term capital gains. The new budget introduces these key changes:
- Tax-Free Limit: The capital gains up to Rs. 1.25 lakh per year are tax-free. This is an increase from the previous limit of Rs. 1 lakh.
- Tax Rate: The gains exceeding Rs. 1.25 lakh are now taxed at a flat rate of 12.5%. This is an increase from the previous rate of 10%.
- Indexation: The benefit of indexation, which allowed investors to adjust the purchase price for inflation, has been removed for all asset classes, including equity mutual funds.
Indexation was a method that allowed investors to adjust the purchase price of assets for inflation. This adjustment reduced taxable profits when selling assets like property or gold. Previously, these long-term capital gains were taxed at 20%. The new rule imposes a flat 12.5% tax on all long-term capital gains but eliminates any indexation benefits.
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 12 months | 15% | 20% |
| Long-Term Capital Gains (LTCG) | More than 12 months | 10% | 12.50% |
Benefits of Investing in the Best Small Cap Mutual Funds
Investing in the best Small Cap Mutual Funds offers several advantages:
- High Growth Potential: Small-cap stocks can provide substantial growth opportunities, potentially outperforming larger companies in the long run.
- Diversification: These funds help in portfolio diversification, spreading risk across a range of small-cap companies.
- Market Efficiency: Smaller companies may be less followed by analysts, allowing for information-based advantages.
- Higher Returns: Historically, small-cap stocks have shown the potential for higher returns, although they come with increased volatility.
Risks Involved While Investing in Small Cap Funds
While finding the best small cap funds, have a look at the associated challenges.
- High Volatility: Small cap stocks are typically more volatile than large cap stocks, meaning their prices can fluctuate more sharply. This can make small cap funds riskier for investors who cannot tolerate large swings in their portfolio value.
- Low Liquidity: Small cap stocks are generally less liquid than large cap stocks, meaning it can be more difficult to buy and sell them. This can be a problem for investors who need to access their cash quickly.
- Higher Risk of Failure: Small cap companies are more likely to fail than large cap companies. This is because they have less financial resources and are more vulnerable to economic downturns.
- Concentration Risk: Small cap funds typically invest in a smaller number of companies than large cap funds. This means that if one of the companies in the portfolio fails, it can have a significant impact on the fund’s performance.
Should I Invest in Small Cap Funds?
Investing in small cap funds can be an excellent opportunity for long-term wealth creation. These funds primarily invest in stocks of small cap companies, which rank below the top 250 firms by market capitalisation. While they come with higher volatility, their growth potential makes them a compelling option.
For investors seeking portfolio diversification, small-cap funds provide exposure to emerging businesses with high growth potential. These funds are best suited for long-term goals, as small-cap companies need time to realise their full potential. Options like the top small-cap mutual funds 2024 or the best small-cap fund 2024 can be considered for those aiming for high returns over an extended period.
In India, small cap funds have gained popularity for their ability to outperform other categories during favourable market conditions, making them some of the best in India for aggressive investors. However, understanding small cap mutual fund meaning and aligning your risk tolerance with your investment horizon is essential before investing.
To Wrap It Up…
In conclusion, small cap mutual funds present an exciting opportunity for investors seeking high growth potential in their portfolios. While these funds come with higher volatility and risks, they can be rewarding over the long term. However, diversifying through small cap MF can enhance a well-rounded investment strategy.
Most Popular Mutual Funds:
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Frequently Asked Questions (FAQs) on Best Small Cap Mutual Funds
The best small cap mutual funds are generally not recommended for a 3-year investment horizon. This is because small cap companies are more volatile and riskier than large-cap companies. Therefore, there is a higher chance of losses in the short term.
Small cap funds are not generally recommended for new investors. This is because new investors may not have the risk tolerance to withstand the volatility of small cap funds. Additionally, new investors may not have the necessary knowledge and experience to choose the right small cap funds.
The returns on small cap mutual funds vary depending on the market conditions. However, small cap funds have the potential to deliver returns than large cap and mid cap funds over the long term.
Best small cap mutual funds can be best suited for investors with a long-term investment horizon (5 years or more). This is because small cap companies need time to grow and mature.
Yes, you can add two small-cap funds to your portfolio. This will help you to diversify your risk and reduce your chances of losses. However, one must consider their risk appetite and investment goals before investing.
The best time to invest in small cap funds is when the market is undervalued. This means that you can buy shares of small cap companies at a lower price. However, it is important to remember that the market is unpredictable, so there is no guarantee of profits.
