Small Cap Funds – Risks that Make You Rich in the Long Run

Buying small cap stocks or small cap funds investment is a high risk type. Senior citizens, retired investors or those Who do not want to take any risks, it is better not to look here! However, investors who start their investment journey at a very young age, those who are financially well-off and can take some risks, or those from the upper financial class (HNI) must invest a small portion of their portfolio in these funds.

What is Small Cap Funds?

Companies with a market capitalization of less than Rs.500 crore are considered small cap. A mutual fund invest in such companies know as a small cap funds. Nifty Small Cap 100 & Nifty Small Cap 250 well know index for small cap companies in NSE.

Note: 1 to 100 companies in the market with large cap, no. 101 to 250 midcap, while no. From 251 onwards, these companies are small cap companies.


  • High Growth Potential as compared to Large cap & Mid Cap.
  • Small Cap stocks are lower priced.
  • Helps to diversify your portfolio
  • Returns on investment is higher as compare to large cap funds.
  • The fund manager has a lot of small cap companies companies to invest. which gives him ample scope for his experience, study and choice.


  • High Risk
  • High Volatile
  • Lower Liquidity

Should I Invest in Small-cap Funds?

The last few years have seen a lot of mutual fund advisors advising their clients to invest in small cap funds. The reason behind this is that the decline in the stock market over the last two years was mainly in mid-cap and small-cap stocks. The Nifty and the Sensex rose on the back of gains in large-cap stocks during the period. However, the decline in mid-cap and small-cap companies also led to a decline in the NAV of all mutual funds. The large-cap index has risen 11 per cent so far this year, while the small-cap index has fallen 8 per cent.

Now, according to some investment experts, large-cap stocks have rallied over the past two years, and given the history of the stock market, large-cap stocks have been followed by mid-caps and then small-cap companies. And small cap shares get returns.

For example, small cap companies grew by 71% per cent in 2014 and 60% per cent in 2017. Due to COVID-19 Pandemic Nifty Small cap 250 Index sharply moves down to -50% (From 5539 to 2867) but its shows rapid recovery within 1 year and currently this index moves up by +128% (2867 TO 7311) from its low. This has led some advisors to urge their investors to invest in small cap funds.

Note: According to some experts, the current boom is a liquidity driven boom. Growth Driven Acceleration is real acceleration. And only when it starts will it be worth investing in this funds.

How do I make an investment?

According to the SEBI, Small cap mutual funds need to invest at least 65% of investments in small cap companies.

  • Most experts are of the opinion that it should not exceed 5% of their investment.
  • People who invest through STP every month should make an STP in a small cap fund for a long period of time.
  • Investors who want to make a lump sum investment in a small cap fund should invest a little bit in the market through STP (Systematic Transfer Plan).

Therefore, the scope of small cap companies is much larger than that of large cap and mid cap companies. That is, the fund manager has a lot of companies to invest in, which gives him ample scope for his experience, study and choice.

Top Small Cap Funds in India

The following is a list of five that have given excellent returns on lump sum and STP investments in the last 10 years.

Fund NameReturn in 10 Years
SBI Small Cap Fund17.87%
DSP Small Cap Fund16.67%
Franklin India Smaller Companies Fund14.83%
Kotak Small Cap Fund13.18%
HDFC Small Cap Fund11.57%

Top STP Investment Small Cap Funds

The funds that give the best return on STP investment are as follows . Investment Rs. 10,000 / – per month. Total investment in 10 years is Rs. 1,200,000 / –

Fund NameToday’s value of InvestmentAverage Return
SBI Small Cap Fund33,70,20019.88%
DSP Small Cap Fund24,92,00014.2%
Franklin India Smaller Companies Fund24,72,20014.06%
HDFC Small Cap Fund21,78,80011.64%
Sudarshan Small Cap Fund20,21,20010.02%

Small-cap Funds of the last 1 year

Fund NameReturn In 1 Year
Axis Small Cap Fund17.05%
ICICI Small Cap Fund8.36%
SBI Prydetial Small Call Fund5.19%
Kotak Small Cap Fund3.22%
Tata Small Cap Fund1.6%


The usual precaution must be taken before investing in the small-cap Funds. Your planned period should be longer. Before choosing funds, check their credit ratings, and only select the top three funds.

Take a Look

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Small cap Funds Investment for better returns

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