15 Best Small Cap Mutual Funds to Invest in India (February 2023)
Small cap mutual funds are open-ended equity funds that invest primarily in stocks of small cap companies with the aim to provide significant returns in the long term. Any company ranked 251st position onwards in terms of market capitalisation (less than Rs.5,000 crore) is a small cap company. As per SEBI (Securities and Exchange Board of India) guidelines, small cap fund funds should invest at least 80% of their total assets in small-cap companies. Check out our list of 15 best small cap funds and select the fund that suits your investment goals.
List of Top Small Cap Mutual Funds in India to Invest in 2023
The table below shows some of the best-performing small cap funds:
| Fund Name | Features |
| Quant Small Cap Fund | NAV: ₹147.80 Expense Ratio: 0.62% AUM: ₹2870.43 Cr |
| Canara Robeco Small Cap Fund | NAV: ₹23.71 Expense Ratio: 2.06% AUM: ₹4567.76 Cr |
| Bank of India Small Cap Fund | NAV: ₹25.63 Expense Ratio: 2.67% AUM: ₹411.81 Cr |
| Nippon India Small Cap Fund | NAV: ₹89.48 Expense Ratio: 1.83% AUM: ₹23701.28 Cr |
| Tata Small Cap Fund | NAV: ₹23.16 Expense Ratio: 2.19% AUM: ₹3117.26 Cr |
| Edelweiss Small Cap Fund | NAV: ₹24.66 Expense Ratio: 2.22% AUM: ₹1437.69 Cr |
| Kotak Small Cap Fund | NAV: ₹158.39 Expense Ratio: 1.90% AUM: ₹8498.04 |
| Sundaram Emerging Small Cap – Series 1 | NAV: ₹16.91 Expense Ratio: 1.38% AUM: ₹312.54 Cr |
| ICICI Prudential Smallcap Fund | NAV: ₹52.71 Expense Ratio: 2.03% AUM: ₹4598.77 Cr |
| HDFC Small Cap Fund | NAV: ₹77.23 Expense Ratio: 1.77% AUM: ₹14649.44 Cr |
| Sundaram Emerging Small Cap – Series 3 | NAV: ₹18.80 Expense Ratio: 1.35% AUM: ₹298.27 Cr |
| Sundaram Emerging Small Cap – Series 2 | NAV: ₹17.03 Expense Ratio: 1.32% AUM: ₹335.05 Cr |
| DSP Small Cap Fund | NAV: ₹109.51 Expense Ratio: 1.32% AUM: ₹335.05 Cr |
| Sundaram Emerging Small Cap – Series 6 | NAV: ₹21.78 Expense Ratio: 1.37% AUM: ₹41.24 Cr |
| Sundaram Emerging Small Cap – Series 5 | NAV: ₹19.35 Expense Ratio: 1.37% AUM: ₹79.77 Cr |
*Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
Also Read
Best Performing Small Cap Mutual Funds Based on 3-Year Returns
1. Quant Small Cap Fund
Launched in November 1996, Quant Small Cap Fund is known as one of the best performing small-cap funds due its consistent performance in the last 3 years. The primary investment objective of the scheme is to seek to generate capital appreciation and provide long-term growth opportunities by investing in a portfolio of Small Cap companies. Let’s look into the fund details:
- NAV: ₹147.80
- Expense Ratio: 0.62%
- AUM: ₹2870.43
- Type of Fund: Small Cap Equity Fund
- Risk: Very High
- Minimum Investment:
- Lump-sum: ₹5,000
- SIP: ₹1,000
- Annualised 3-Year Returns: 48.16%
- Annualised 5-Year Returns: 23.58%
2. Canara Robeco Small Cap Fund
Also considered as one of the top-performing small-cap mutual funds, Canara Robeco Small Cap Fund has 96.34% investment in domestic equities of which 4.34% is in large cap stocks, 17.8% is in mid cap stocks, 55.11% in small cap stocks. The scheme could be ideal for Investors who are looking to invest money for at least 3-4 years and looking for very high returns.
- NAV: ₹23.71
- Expense Ratio: 2.06%
- AUM: ₹4567.76 Cr
- Type of Fund: Small Cap Fund
- Risk: Very High
- Minimum Investment:
- Lump-sum: : ₹5,000
- SIP: ₹1,000
- Annualised 3-Year Returns: 33.47%
- Annualised 5-Year Returns: NA
3. Bank of India Small Cap Fund
Bank of India Small Cap Fund is considered as one of the best small cap mutual funds. This fund invests predominantly in equity and equity related securities of small cap companies. Under normal market conditions, the fund will invest 65% to 100% of assets in a diversified portfolio constituting equity and equity-related instruments of small cap companies with sustainable business models, and potential for capital appreciation. Let’s look into the scheme details:
- NAV: ₹25.63
- Expense Ratio: 2.67%
- AUM: ₹411.81 Cr
- Type of Fund: Small Cap Fund
- Risk: Very High
- Minimum Investment:
- Lump-sum: ₹5,000
- SIP: ₹1,000
- Annualised 3-Year Returns: 32.56%
- Annualised 5-Year Returns: NA
4. Nippon India Small Cap Fund
One of the best-performing small cap mutual funds based on 3-year returns, Nippon India Small Cap Fund aims to generate long-term capital appreciation by investing predominantly in equity and equity related instruments of small cap companies. Let’s look into the scheme details:
- NAV: ₹89.48
- Expense Ratio: 1.83%
- AUM: ₹23701.28 Cr
- Type of Fund: Small Cap Fund
- Risk: Very High
- Minimum Investment:
- Lump-sum: ₹5,000
- SIP: ₹1,000
- Annualised 3-Year Returns: 30.53%
- Annualised 5-Year Returns: 14.86%
5. Tata Small Cap Fund
Tata Small Cap Fund is considered as one of the top 5 small cap mutual fund schemes based on its 3-year performance. This fund aims to generate long term capital appreciation by predominantly investing in equity and equity-related instruments of small cap companies. The scheme is suitable for investors looking for long-term capital appreciation.
- NAV: ₹23.16
- Expense Ratio: 2.19%
- AUM: ₹3117.26 Cr
- Type of Fund: Small Cap Fund
- Risk: Very High
- Minimum Investment:
- Lump-sum: ₹5,000
- SIP: ₹500
- Annualised 3-Year Returns: 29.48%
- Annualised 5-Year Returns: NA
6. Edelweiss Small Cap Fund
This fund invests in small businesses that aim to deliver exponential business and earnings growth. This fund is ideal for investors who want to stay invested for 7-10 years. Let’s look into the scheme details:
- NAV: ₹24.66
- Expense Ratio: 2.22%
- AUM: ₹1437.69 Cr
- Type of Fund: Small Cap Fund
- Risk: Very High
- Minimum Investment:
- Lump-sum: ₹5,000
- SIP: ₹500
- Annualised 3-Year Returns: 29.30%
- Annualised 5-Year Returns: NA
7. Kotak Small Cap Fund
Launched in February 2005, this small cap fund from Kotak Mutual Fund aims to generate capital appreciation from a diversified portfolio of equity and equity related securities. This scheme could be ideal for investors having an investment horizon of 7 years or more. Let’s look into the scheme details:
- NAV: ₹158.39
- Expense Ratio: 1.90%
- AUM: ₹8498.04 Cr
- Type of Fund: Small Cap Fund
- Risk: Very High
- Minimum Investment:
- Lump-sum: ₹5,000
- SIP: ₹1,000
- Annualised 3-Year Returns: 27.30%
- Annualised 5-Year Returns: 15.61%
8. Sundaram Emerging Small Cap – Series 1
This small cap mutual fund scheme has 12.52% investment in domestic equities of which 1.95% is in large cap stocks, 2.57% is in mid cap stocks and 4.39% in small cap stocks. The fund is suitable for Investors who are looking to invest money for at least 3-4 years and looking for very high returns. Here are the fund details:
- NAV: ₹16.91
- Expense Ratio: 1.38%
- AUM: ₹312.54 Cr
- Type of Fund: Small Cap Fund
- Risk: Low to Moderate
- Minimum Investment:
- Lump-sum: ₹5,000
- SIP: NA
- Annualised 3-Year Returns: 25.80%
- Annualised 5-Year Returns: NA
9. ICICI Prudential Smallcap Fund
This mutual fund scheme is ideal for investors with an investment horizon of 5 years or above looking for long-term capital appreciation. The fund has 92.19% investment in domestic equities of which 4.16% is in mid cap stocks, and 60.89% in small cap stocks. Let’s look into the fund details:
- NAV: ₹52.71
- Expense Ratio: 2.03%
- AUM: ₹4598.77 Cr
- Type of Fund: Small Cap Fund
- Risk: Very High
- Minimum Investment:
- Lump-sum: ₹5,000
- SIP: ₹100
- Annualised 3-Year Returns: 25.73%
- Annualised 5-Year Returns: 12.91%
10. HDFC Small Cap Fund
This scheme is ideal for investors looking to generate long-term capital appreciation/income. The fund invests predominantly in small-cap companies and could be suitable for investors with an investment horizon of more than 5 years. Let’s look into the scheme details:
- NAV: ₹77.23
- Expense Ratio: 1.77%
- AUM: ₹14649.44 Cr
- Type of Fund: Small Cap Fund
- Risk: Very High
- Minimum Investment:
- Lump-sum: ₹100
- SIP: ₹100
- Annualised 3-Year Returns: 25.45%
- Annualised 5-Year Returns: 12.03%
11. Sundaram Emerging Small Cap – Series 3
The fund has 57.96% investment in domestic equities of which 3.14% is in large cap stocks, 2.6% is in mid cap stocks and 38.61% in small cap stocks. The fund is ideal for investors who are looking to invest money for at least 3-4 years and looking for very high returns. Let’s look into the scheme details:
- NAV: ₹18.80
- Expense Ratio: 1.35%
- AUM: ₹298.27 Cr
- Type of Fund: Small Cap Fund
- Risk: High
- Minimum Investment:
- Lump-sum: ₹5,000
- SIP: NA
- Annualised 3-Year Returns: 25.38%
- Annualised 5-Year Returns: NA
12. Sundaram Emerging Small Cap – Series 2
This small cap mutual fund scheme has 33.03% investment in domestic equities of which 1.95% is in large cap stocks, 2.56% is in mid cap stocks, 20.65% in small cap stocks. This fund is suitable for investors who are looking to invest money for at least 3-4 years and looking for very high returns.
- NAV: ₹17.03
- Expense Ratio: 1.32%
- AUM: ₹335.05 Cr
- Type of Fund: Small Cap Fund
- Risk: Moderate
- Minimum Investment:
- Lump-sum: ₹5,000
- SIP: NA
- Annualised 3-Year Returns: 25.05%
- Annualised 5-Year Returns: NA
13. DSP Small Cap Fund
Launched in 2007, DSP Small Cap Fund invests in some of the smallest, fastest growing and innovative Indian companies. The fund considers companies with strong business models in high growth sectors and efficient management teams focused on utilizing resources wisely to eventually unlock high-growth potential. Here are the fund details:
- NAV: ₹109.51
- Expense Ratio: 1.85%
- AUM: ₹9160.66 Cr
- Type of Fund: Small Cap Fund
- Risk: Very High
- Minimum Investment:
- Lump-sum: ₹500
- SIP: ₹500
- Annualised 3-Year Returns: 24.88%
- Annualised 5-Year Returns: 10.65%
14. Sundaram Emerging Small Cap – Series 6
This small cap fund fund has 86.66% investment in domestic equities of which 3.17% is in large cap stocks, 2.6% is in mid cap stocks and 61.57% in small cap stocks. The fund is suitable for investors who are looking to invest money for at least 3-4 years and looking for very high returns. Here are the fund details:
- NAV: ₹21.78
- Expense Ratio: 1.37%
- AUM: ₹41.24 Cr
- Type of Fund: Small Cap Fund
- Risk: Very High
- Minimum Investment:
- Lump-sum: ₹5,000
- SIP: NA
- Annualised 3-Year Returns: 24.48%
- Annualised 5-Year Returns: NA
15. Sundaram Emerging Small Cap – Series 5
This mutual fund scheme has 86.68% investment in domestic equities of which 3.17% is in large cap stocks, 2.59% is in mid cap stocks, and 61.69% in small cap stocks. The fund could be suitable for investors looking for long-term capital growth. Here are the fund details:
- NAV: ₹19.35
- Expense Ratio: 1.37%
- AUM: ₹79.77 Cr
- Type of Fund: Small Cap Fund
- Risk: Very High
- Minimum Investment:
- Lump-sum: ₹5,000
- SIP: NA
- Annualised 3-Year Returns: 24.47%
- Annualised 5-Year Returns: NA
How Do Small Cap Funds Work?
Small cap mutual funds invest a significant share of their corpus in stocks of small cap companies having a market share of less than Rs.5,000 crore. For actively managed small cap funds, the fund manager picks, buys and sells stocks based on the scheme’s investment objective with the sole intention to beat the benchmark index. The aim of these funds is to provide substantial returns to long-term investors. The returns of these funds are directly dependent on the performance of its underlying stocks. Let’s understand the working of a small cap fund with an example.
Nippon India Small Cap Fund has 96.48% investment in domestic equities of which 8.39% is in large cap stocks, 7.3% is in mid cap stocks and 63.89% in small cap stocks. As you can see, the fund has a significant chunk of share in small cap stocks. However, for diversification, the fund also invests in large cap and mid cap stocks and the remaining in debt instruments.
Point to Note: Staying invested in small cap funds for the long-term without getting influenced by short-term dips could help you generate substantial returns. This is why small cap funds are also considered as a retirement-corpus building fund.
Advantages of Investing in Best Small Cap Mutual Funds
Here are some of the advantages of investing in small cap funds:
- High Growth Potential: Small cap companies often have higher growth potential compared to larger, more established companies.
- Diversification: Small cap funds provide exposure to a wide range of small cap companies and can help diversify an investment portfolio.
- Expertise: Fund managers have the expertise and resources to conduct thorough research and due diligence on small cap companies, which individual investors may not have.
- Liquidity: Like any other equity funds, small cap funds are highly liquid, allowing investors to easily buy and sell their shares.
How to Choose Top Small Cap Mutual Funds?
Consider the following factors while choosing best small cap funds:
- Investment Objective: Make sure the fund aligns with your investment goals, such as growth or income.
- Fund Performance: Look at the fund’s historical performance and compare it to the performance of similar funds and the benchmark index.
- Fund Expenses: Consider the fund’s expense ratio, which is the annual fee charged by the fund manager.
- Fund Management: Research the fund manager’s investment style, track record, and tenure with the fund.
- Portfolio Diversification: Check the number of holdings in the fund’s portfolio and the sectors it invests in to ensure a well-diversified portfolio.
Who Should Invest in Small Cap Mutual Funds?
1. Investors with a High-risk Appetite
Small-cap equity funds can be very risky investments, however, they can also provide the best returns. These stocks suffer the most during a sharp fall in the stock market and are subject to high volatility. As a result, only investors able to take high risks may consider these investments.
2. Investors Looking for High Returns
These mutual funds have the potential to offer superior returns over a long period compared to other types of equity funds. This is because companies with low market cap have a large potential to grow over time. Accordingly, there’s ample room for the company’s stock price to increase.
3. Individuals with a Long-term Investment Horizon
Sharp falls and prolonged periods of volatility are common for small-cap funds. As such, these are unsuitable for investors who have a low-risk appetite. However, patient investors who are willing to hold onto their investments for a long time (say 7 years or more) can get unmatched returns.
How to Invest in Small Cap Funds?
Here’s how you can invest in small cap funds:
- Step 1: Got to the AMC’s (Asset Management Company) website or app
- Step 2: Select a small cap scheme based on your investment objective and risk tolerance
- Step 3: Complete your KYC with PAN and Aadhaar
- Step 4:Start investing in lump sum or via SIP
Disadvantages of Investing in Small Cap Mutual Funds
- These funds might not be suitable for investors who may not have the patience to stay invested in a scheme for a long period.
- As mentioned earlier, small-cap stocks carry high risk as they may not have adequate financial backing. In case a small-cap company goes out of business, investors may suffer heavy losses.
- With hundreds of small-cap companies, fund managers need to do thorough research to know which one has the potential to generate substantial returns.
- You have to time the buying and redeeming of these investments as market fluctuations can make or break them in a short time. That said, one can combat this issue by investing in small-cap funds via a systematic investment plan (SIP). This investment route averages the purchase cost of the units over the long term.
Taxation on Small Cap Funds
The returns on small cap funds are taxed like any other equity funds.
- If you redeem units of an index fund within 12 months, your returns will attract a short-term capital gains tax (STCG) of 15%.
- However, if your holding period is more than 12 months, you are liable to pay long-term capital gains tax (LTCG) tax of 10% on gains exceeding Rs.1 lakh in a financial year. Any gain less than Rs.1 lakh is exempt from tax.
Final Word
Small-cap funds have the potential to generate higher returns. However, before investing in the best small cap funds, you should assess your risk tolerance and investment objective. Also, staging invested in small cap funds for the long term could help you generate significant returns albeit with risks.
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FAQs
Ans: Depending on the holding period, short-term capital gains (STCG) tax of 15% or long-term capital gains (LTCG) tax of 10% is applicable on the realised returns. Nevertheless, note that LTCG of up to Rs. 1 lakh is tax-free.
Ans: This is because these funds invest in companies with small market capitalisation, which can be negatively affected by price fluctuations in the stock market. Hence, these funds are a risky bet. That said, in comparison to other mutual funds, these schemes have the potential to generate higher returns.
Ans: You can pick a small-cap fund that invests that offers high sectoral diversification. Also, you can look at other factors like past performance, the experience of the fund manager, and more.
Ans: Small-cap funds can offer higher returns than other equity-oriented mutual fund schemes. That said the rate of return depends on various factors, such as the market scenario, the experience of the fund manager, etc.
Ans: A common rule of thumb for stock investments is that you need to have a long investment horizon owing to the market fluctuations.
Ans: Small cap mutual funds are a type of equity funds that invest a significant portion of their corpus in stocks of small cap companies having a market cap of less than Rs.5,000 crore. These funds are ideal for investors having a long-term investment horizon and strong risk appetite.
Ans: Here are some of the best performing small cap funds based on 3-year returns:
1. Quant Small Cap Fund
2. Canara Robeco Small Cap Fund
3. Bank of India Small Cap Fund
4. Nippon India Small Cap Fund
5. Tata Small Cap Fund
Ans: Small cap funds have the potential to generate highest returns across all fund categories in the long-term. However, these funds are prone to market volatility as they invest in smaller companies, meaning their prices can fluctuate rapidly and unpredictably. So, consider your investment objective, investment horizon and risk tolerance before investing in these funds.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
