5 Best Small Cap Mutual Funds in 2025

Investing in small cap mutual funds can be a strategic move for investors seeking high growth potential. These funds primarily invest in companies with smaller market capitalizations, which, while riskier, offer significant upside opportunities.

What is a Small Cap Fund?

A small cap fund focuses on investing in companies with a relatively small market capitalization, typically ranging from ₹500 crore to ₹5,000 crore. These companies are often in their growth phases, presenting the potential for substantial returns.

Pros of Investing in Small Cap Funds:

• High Growth Potential: Small-cap companies can grow rapidly, leading to significant capital appreciation.
• Diversification: Including small-cap funds in your portfolio adds diversity, reducing dependence on large-cap stocks.
• Undervalued Opportunities: These companies may be undervalued, offering investment opportunities before they gain widespread recognition.

Cons of Investing in Small Cap Funds:

• Higher Volatility: Smallcap stocks are more susceptible to market fluctuations, leading to increased volatility.
• Liquidity Concerns: These stocks may have lower trading volumes, making it harder to buy or sell large quantities without affecting the market price.
• Limited Information: Less publicly available information can make it challenging to assess the company’s fundamentals.

Top 5 Small Cap Mutual Funds:

1. Nippon India Small Cap Fund

1. Overview: This fund focuses on identifying high-growth potential companies within the small-cap segment.
2. Performance: As of November 30, 2024, the fund delivered a 1-year CAGR of 34.28%, outperforming its benchmark, the Nifty Smallcap 250 TRI, which returned 34.52% during the same period.
3. Pros:
   • Strong track record of consistent returns.
   • Experienced fund management team.
4. Cons:
   • High volatility due to small-cap exposure.
   • Lumpsum investments are not available temporary.

2. Motilal Oswal Small Cap Fund

1. Overview: This fund aims to achieve long-term capital appreciation by investing predominantly in small-cap companies.
2. Performance: In 2024, the fund delivered a return of 46.89%, significantly outperforming its benchmark.
3. Pros:
   • High returns in the past year.
   • Focus on quality small-cap stocks.
4. Cons:
   • Higher risk due to concentration in small-cap equities.
   • Potential for increased volatility.

3. Quant Small Cap Fund

1. Overview: This fund seeks to provide long-term capital appreciation by investing primarily in small-cap companies.
2. Performance: The fund achieved a return of 25.19% in the first half of 2024, outperforming its benchmark, the Nifty Smallcap 250 TRI, which returned 21.24% during the same period.
3. Pros:
   • Strong performance in the first half of 2024.
   • Diversified portfolio within the small-cap segment.
4. Cons:
   • Subject to market volatility inherent in small-cap investments.
   • Performance may vary with market conditions.

4. Invesco India Smallcap Fund

1. Overview: This fund focuses on investing in small-cap companies with strong growth potential.
2. Performance: In 2024, the fund delivered a return of 40.43%, outperforming its benchmark.
3. Pros:
   • Impressive returns in the past year.
   • Experienced fund management team.
4. Cons:
   • Higher risk associated with small-cap investments.
   • Potential for increased volatility.

5. Bandhan Small Cap Fund

1. Overview: This fund aims to generate long-term capital growth by investing predominantly in small-cap companies.
2. Performance: The fund led the small-cap category with a return of 47.73% in 2024, significantly outperforming its benchmark.
3. Pros:
   • Top performer in the small-cap category for 2024.
   • Focus on high-growth potential companies.
4. Cons:
   • High volatility due to small-cap exposure.
   • Suitable for investors with a high-risk appetite.

FAQs

Conclusion

Investing in small-cap mutual funds offers the potential for high returns but comes with increased risk and volatility. The funds listed above have demonstrated strong performance in 2024, making them noteworthy considerations for 2025. However, it’s crucial to align such investments with your risk tolerance and investment horizon. Consulting with a financial advisor can provide personalized guidance tailored to your financial goals.

If you are planning for SWP, you can check our SWP Calculator app.