Top Small Cap Mutual Funds for SIP and Lumpsum
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 small-cap mutual funds, their benefits and risks, and how you can fit them 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 list of small cap mutual funds in India based on 1Y Absolute Returns.
| Smallcap Funds | Sub Category | AUM (Cr.) | CAGR 3Y (%) | Expense Ratio (%) | Absolute Returns - 1Y (%) |
|---|---|---|---|---|---|
| Mirae Asset Hang Seng TECH ETF FoF | FoFs (Overseas) | 80.99 | 17.21 | 0.09 | 102.65 |
| IL&FS Infra Debt Fund - Series 2-A | Sectoral Fund - Infrastructure (Debt) | 205.53 | 44.54 | 0 | 53.59 |
| UTI Gold ETF FoF | FoFs - Gold | 171.93 | 0.00 | 0.19 | 35.88 |
| LIC MF Gold ETF FoF | FoFs - Gold | 80.36 | 17.77 | 0.2 | 35.47 |
| Quantum Gold Saving Fund | FoFs - Gold | 161.32 | 17.25 | 0.03 | 35.22 |
| Invesco India Gold ETF FoF | FoFs - Gold | 113.72 | 17.82 | 0.1 | 34.63 |
| DSP Gold ETF FoF | FoFs - Gold | 57.09 | 0.00 | 0.65 | 34.59 |
| Tata Gold ETF FoF | FoFs - Gold | 129.17 | 0.00 | 0.16 | 33.86 |
| Motilal Oswal Gold and Silver ETFs FoF | FoFs - Gold | 207.31 | 0.00 | 0.15 | 33.81 |
| UTI Silver ETF FoF | Flexi Cap Fund | 43.59 | 0.00 | 0.15 | 33.27 |
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 4th March 2025. This data is derived from the Tickertape Mutual Funds Screener.
Filters:
1Y Absolute Returns: Sorted from highest to lowest
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Overview of Top 5 Small Cap Funds in India
Here is a brief overview of the top mutual funds for SIP from our list of small cap mutual funds in India above:
Mirae Asset Hang Seng TECH ETF FoF
This fund primarily invests in units of the Mirae Asset Hang Seng TECH ETF, aiming to provide long-term capital appreciation. It offers exposure to the technology sector in the Hang Seng index.
IL&FS Infra Debt Fund – Series 2-A
Focused on infrastructure debt instruments, this scheme seeks to generate income and capital appreciation by investing in securities permitted under SEBI regulations.
UTI Gold ETF FoF
This scheme aims to deliver returns that correspond to the performance of the UTI Gold ETF by investing in its units. It provides an indirect route for investors to gain exposure to gold without the need for direct physical ownership.
LIC MF Gold ETF FoF
Designed to closely track the returns of the IDBI Gold Exchange Traded Fund (IDBI GOLD ETF), this scheme enables investors to participate in the price movement of gold through a fund-of-fund structure.
Quantum Gold Saving Fund
This scheme seeks capital appreciation by predominantly investing in units of the Quantum Gold Fund – Exchange Traded Fund (QGF). It offers an avenue for investors to gain exposure to gold as an asset class while benefiting from the liquidity and accessibility of an ETF-based investment.
What are 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 mutual fund schemes 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.
How to Invest in Small Cap Funds?
You can easily invest in small cap mutual funds by following these steps:
- To invest in the best mutual funds in India, you can visit an online investment platform such as smallcase or Tickertape.
- The next step would be to research the mutual fund performance and identify the best small cap funds which aligns with your investment thesis. You can select and learn more about the best small cap funds with the help of a financial tool like the Tickertape Mutual Fund Screener. With 50+ pre-loaded filters, it helps you to create a comprehensive list of the top 10 mutual funds in India by giving insights about the fund’s performance. Try it now!
- Once you have selected the funds based on different metrics and parameters, go to smallcase.com or the smallcase app, and login via your phone number. Click on ‘Discover‘ and enter the name of the specific mutual fund name in the search bar and hit enter. You can click on ‘invest now’ and select whether you want to invest a lump sum amount or start a SIP and start investing!
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.
- High Return Potential: 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 or high return small cap mutual funds should consider these factors carefully.
- Investment Horizon: Small cap companies need time to grow and mature, making them a viable choice for those seeking the best small cap funds or high return mutual funds in the small cap category.
- Diversification: 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: The list of small cap mutual funds in India 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 or the best small cap SIP.
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, 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.
Factors to Consider Before Investing in Small Cap Funds
Before investing in the best small cap mutual funds, there are a few factors that you should consider:
- Risk: Small cap funds are riskier 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 or best smallcap funds in India.
- Return Potential: The top 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 of small cap funds 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 top small cap fund or best small cap SIP 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 or best small cap funds often highlight this as a key criterion for success.
- Expense Ratio: A lower expense ratio will leave you with more money in your pocket, making options like the best small cap fund or high return small cap mutual funds appealing for cost-conscious investors.
Who Can Explore Small Cap Mutual Funds?
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 Identify Small Cap Mutual Funds?
Identifying the right small cap mutual funds is thrilling in the stock market. Here’s how you can find the best ones:
- Define Your Goals: Start with a clear understanding of your financial objectives. Are you aiming for growth, income, or a combination?
- 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 small cap 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 top mutual funds in India in the small cap category 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
| 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% |
- 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.
Benefits of Investing in the Best Small Cap Mutual Funds
Investing in the best Small Cap Mutual Funds list 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. Investors must keep in mind that mutual fund returns cannot be guaranteed.
Risks Involved While Investing in Small Cap Funds
While finding the top 5 small cap fund, you must be aware of 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 the top 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.
To Wrap It Up…
In conclusion, small cap mutual funds are some of best mutual funds for sip and 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.
Frequently Asked Questions (FAQs) on Best Small Cap Mutual Funds
Here are some of the top 5 mutual funds in India in the small cap category, based on 1Y absolute returns: (as of 4th March 2025)
– Mirae Asset Hang Seng TECH ETF FoF
– IL&FS Infra Debt Fund – Series 2-A
– UTI Gold ETF FoF
– LIC MF Gold ETF FoF
– Quantum Gold Saving Fund
Note: This information is for educational purposes and is not recommendatory in nature.
Small-cap companies have a lower market capitalisation compared to mid-cap and large-cap companies, which is less than Rs. 5,000 cr.
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.
Note: Investors should keep in mind that small cap funds are subject to market risk and returns cannot be guaranteed.
Small-cap funds are exposed to higher volatility, liquidity risks, and market fluctuations due to the relatively smaller size of their underlying companies. These funds may experience sharper price swings, making them riskier than mid-cap or large-cap funds.
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 return. Always consult a financial advisor before making any investment decisions.
Most Popular Mutual Funds:
As an investor to have a diversified mutual funds portfolio, you might also like to know more about these different types of funds for investing –
