Top 5 Small Cap Funds

Below is the list of best five small cap funds.

Name of Fund 5 Year Returns (p.a.) Scheme Category
SBI Small Cap Fund 21.45% Small Cap
HDFC Small Cap Fund18.60% Small Cap
DSP Small Cap Fund19.50% Small Cap
Kotak Small Cap Fund19.89% Small Cap
Sundaram Small Cap Fund22.60% Small Cap
These funds invest minimum 65% of its assets in small cap companies. The minimum investment horizon is 10 years.

What are the Small Cap funds ?

Small-cap funds have been categorized under equity funds. The Small-Cap funds are basically invested in a small portion with companies of small market capitalization. These companies include small-revenue companies or start-ups that have a high potential for growth in the future but usually in the early stage of development.

As per the Securities and Exchange Board of India (SEBI), small-cap funds are the investments made in the shares/stocks of the companies ranked greater than 251 in terms of market capitalization.

Why small-cap funds give more returns than large-cap in the long horizon of say around 10 years?

Small-cap mutual fund schemes have the potential to offer superior returns over a long period. This is because small-cap funds bet in the small companies and these companies are flexible and adaptable, which enables them to quickly take benefits of changing market conditions.

The high growth potential and aggressive nature of these companies enable them to become a large or mid-cap company in the future and may give very high returns. So, they need sufficient time to grow and experience dramatic capital gains.

While on the other hand large-cap funds bet in large and well-established companies. As they are mature and well-established companies, it is difficult to achieve massive growth which results in smaller and steady returns of investment.

Is it advisable to invest in small-cap funds for a short horizon ?

No, it is not advisable to invest in these funds for a short horizon as these might give losses in the short run due to frequent changes in the stock list of funds or fluctuations in the business cycles.

Investing in small-cap funds for short horizon can be counterproductive because small companies need time to grow and if you withdraw/redeem your money from these mutual funds in a short horizon, you could suffer losses.

Can we invest our retirement corpus in small-cap funds?

No, small caps funds are clearly not in the line to invest your retirement corpus. This is because the post-retirement expenses start immediately after the retirement and from this retirement corpus amount only, you have to bear all the expenses for the rest of your life.

Small-Cap funds are not good in providing regular dividend and due to their volatility nature, they can easily affect by any fall in the market. So, they are not suitable for risk-averse investors. They can be beneficial for those who can bear the high risk and can wait enough to get huge returns.

Can a young person allocate some portion of their investments in small-cap funds?

Yes! A young person are identified as aggressive and risk-taker investors, so they can allocate some portion of their investment in small-cap funds and take the advantage of high returns by investing for the long horizon. But before investing, you should check your risk profile also as there is a risk of losing the entire invested capital.

Are small-cap funds risky?

Yes! Small caps funds considered a higher risk investment. This is because of the uncertainty in the small cap space which is difficult be identified. Any downturn of the market can affect small companies very easily and brings a huge loss in their capital.

Which are better funds - small cap funds or large cap funds?

There are bundle of factors on the basis of which an investors can choose which one is better to make the investments. The factors are following:

Risk tolerance degree – In small cap funds the chances of risk is very high as any downturn in the market can easily affects these companies, results in huge losses for the investors. In contrast, Large Cap Funds are the investments made in well established companies resulting in stable returns.

Growth potential – Small cap funds are typically younger companies and seek to attain high growth. So, small cap funds have high potential to grow. Large cap funds have already attained their growth, so stable and steady growth tends to be a worthy goal for them.

Dividends frequency – small cap funds can’t offer frequent dividends and instead of issuing dividends to their investors, they give the priority to reinvest their profit into the company, while on other hand large cap funds offer dividends as an incentive which becomes steady income for their investors.

Further Reading:

If you have any queries or suggestions, please contact us at


We do not offer any financial advice / recommendations through this website. This website should be used only for informational / educational / knowledge enhancement purposes.
Investment in mutual funds or any asset class comes with an inherent risk. This is just a web-based tool for getting a rough estimate about the future value of your SIP / lump sum investments. The calculations are based on projected annual returns and periods. The actual annual returns may be higher or lower than the estimated value and it may have a significant impact on the final returns/goals.
So, you are requested to kindly do your own analysis or hire an expert financial advisor / planner before making any investment decision.

Notice: I do not receive any "payment" or "fee" or "commission" for listing the funds on the website. You are requested to suggest any new features or report any error to help us to improve this website.

© Copyright 2020-2024 Best Five Small Cap Funds | All Rights Reserved