Best Small Cap Mutual Funds 2024

Small cap mutual funds specialize in investing in companies that have relatively smaller market capitalization, usually below Rs 5,000 crores. These companies have high growth potential but also come with higher risk compared to large-cap and mid-cap funds. Investing in small cap mutual funds can be a strategic move for investors seeking high returns over the long term.

Why Invest in Small Cap Mutual Funds?

High Growth Potential: Small-cap companies are often in the early stages of growth and can provide substantial returns as they expand.

Diversification: Investing in small-cap funds diversifies your portfolio and reduces dependency on large-cap stocks.

Market Inefficiencies: Small-cap stocks are less covered by analysts, presenting opportunities to capitalize on undervalued stocks.

Key Considerations

Risk Tolerance: Small-cap funds are volatile and best suited for investors with a high-risk appetite.

Investment Horizon: A longer investment horizon (5-10 years) is recommended to ride out market volatility.

Fund Performance: Evaluate the historical performance of the fund, focusing on consistency and returns relative to benchmarks.

Fund Manager: The expertise and track record of the fund manager play a crucial role in the performance of small-cap funds.

List of Small Cap Mutual Funds in India

Here is a list of notable small-cap mutual funds available in India based on recent data:

  1. IDBI Small Cap Fund Direct Growth
  2. Nippon India Small Cap Fund Direct Growth
  3. Quant Small Cap Fund Direct Plan Growth
  4. Franklin India Smaller Companies Direct Fund Growth
  5. HSBC Small Cap Fund Direct Growth
  6. Bandhan Emerging Businesses Fund Direct Growth
  7. LIC MF Small Cap Fund Direct Growth
  8. Tata Small Cap Fund Direct Growth
  9. Canara Robeco Small Cap Fund Direct Growth
  10. Invesco India Smallcap Fund Direct Growth
  11. Bank of India Small Cap Fund Direct Growth
  12. Bandhan Small Cap Fund Direct Growth
  13. Edelweiss Small Cap Fund Direct Growth
  14. HDFC Small Cap Fund Direct Growth
  15. ICICI Prudential Smallcap Fund Direct Plan Growth

How to Choose the Best Small Cap Mutual Fund

Fund Performance: Look at the fund’s historical performance over different time periods.

Expense Ratio: A lower expense ratio can have a substantial impact on your total returns.

Fund Manager’s Experience: A seasoned fund manager with a good track record is preferable.

Asset Under Management (AUM): Higher AUM indicates investor trust but too high can lead to inefficiencies in small-cap investments.

Portfolio Diversification: Ensure the fund is well-diversified across various sectors to mitigate risks.

Risks Associated with Investing in Small Cap Mutual Funds

High Volatility: Small-cap stocks tend to be more volatile than large or mid-cap stocks, leading to significant price fluctuations.

Liquidity Risk: Smaller companies may have lower trading volumes, making it harder to buy or sell shares without impacting the stock price.

Business Risk: Small-cap companies often have less established business models and financial stability, increasing the risk of business failure.

Market Risk: Economic downturns and market corrections can disproportionately affect small-cap stocks.

Limited Information: Less analyst coverage and available information can make it challenging to thoroughly research small-cap stocks.

Mitigating Risks

  • Diversification: Spread investments across multiple sectors and companies.
  • Long-term Horizon: Be prepared to invest for the long term to ride out volatility.
  • Professional Management: Rely on experienced fund managers with a good track record in small-cap investing.
  • Investors should carefully consider these risks and their own risk tolerance before investing in small-cap mutual funds.

Factors to Consider Before Investing in Small Cap Mutual Funds

  • Risk Tolerance: Assess your ability to handle high volatility and potential losses.
  • Investment Horizon: Small cap mutual funds require a long-term commitment, typically 5-10 years, to mitigate short-term volatility.
  • Fund Performance: Analyze historical performance and consistency relative to benchmarks.
  • Expense Ratio: Lowering expense ratios can enhance net returns.
  • Fund Manager: The experience and track record of the fund manager are crucial for navigating the small-cap market.
  • Diversification: Ensure the fund is diversified across sectors to reduce risk.
  • Market Conditions: Economic cycles can significantly impact small-cap stocks.

Who Should Invest in Small Cap Mutual Funds?

1. Risk-Tolerant Investors: Small-cap funds are highly volatile and best suited for investors with a high-risk appetite.

2. Long-Term Investors: Those with an investment horizon of 5-10 years can benefit from the potential growth of small-cap stocks.

3. Diversified Portfolio Seekers: Investors looking to diversify their portfolio beyond large and mid-cap stocks.

4. Experienced Investors: Those who have a good understanding of market risks and dynamics.


Small cap mutual funds can be an excellent addition to an investment portfolio for those seeking high growth potential and willing to accept higher risks. Thorough research and understanding of individual funds are crucial for making informed investment decisions.

Also read: What is XIRR in Mutual Funds

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