Best Small Cap Mutual Funds

Best Small Cap Mutual Funds


What are Small Cap Mutual Funds?

Let us understand a little bit about what are Small Cap Mutual Funds, before jumping on to the list of Best Small Cap Mutual Funds.

As per the SEBI classification of stocks the companies that are ranked from the 251st position onwards in market capitalization are small-cap companies, the list for which is rearranged semi-annually. The mutual fund schemes that hold such stocks are classified as Small Cap Mutual Funds.

Some of these small cap stocks become the future mid and large caps thus best small-cap mutual funds have the potential to generate substantial returns in the long term.


SEBI Guidelines for Asset allocation of Small Cap Funds

The regulator has mandated a minimum of 65% of the Scheme’s portfolio to be invested in Small Cap stocks for the scheme to qualify as a Small Cap Scheme.

Asset AllocationValue in %
Equity & equity related instruments of small cap companies65-100%
Other equity & equity related instruments which are in top 250 stocks by market capitalization0-35%
Debt and money market securities0-35%
Units of REITs & InvITS0-10%


Small Cap Index

Market ConditionPeriod/IndexNifty 50Nifty small cap
NA5Y (2017-2021)125.80%120.82%

Small caps have generally provided more returns than the NIFTY index. But as seen in the table, the small-cap index is volatile, and returns hugely vary based on

whether the market is in a bearish or bullish cycle. This volatility means the drawdown (or losses) can also be higher than the NIFTY index.


Risks involved

High Risk Factor

Small-cap companies are more prone to risks. Mostly, they cannot survive a financial crunch or economic downturn. Many small-cap companies run out of business while surviving against their competitors. The value of small-cap funds investing in such companies can also go down accordingly.

High Volatility

Stocks of small-cap companies are impacted when the market sentiment turns weak. Small-cap stocks tend to fall more during volatile markets.


Advantages / Benefits

Higher growth potential

Small-cap funds have high growth potential as they invest in smaller companies which have a smaller base and hence a greater scope for expansion in operations as compared to larger companies.

Under researched and under valued

Small-cap companies are under-researched as most of them are undiscovered. As a result, they have little analyst coverage. There is a high probability of them being undervalued, and therefore, small-cap mutual funds are a good investment opportunity.

Diversification benefits

A Small cap fund offers a large pool of varied, uncorrelated stocks that reduce correlation with other stocks and the broader market


Top Performing Small Cap Mutual Funds

Now let us have a look at Top Small Cap Mutual Funds based on their 3 yr returns.

Fund NameLaunchNet Assets (Cr)No of Stocks in the PortfolioTop 10 Stocks %1 Yr Ret (%)3 Yr Ret (%)5 Yr Ret (%)10 Yr Ret (%)15 Yr Ret (%)Standard DeviationSharpe RatioFund Manager
BOI AXA Small Cap Fund19-Dec-182137226%70.86%40.63%------23.871.38Aakash Manghani
Quant Small Cap Fund24-Nov-961,3755143%90.16%39.41%23.69%16.24%15.55%32.231.01Sanjeev Sharma & Ankit A Pande
Kotak Small Cap Fund24-Feb-056,7627036%67.71%35.72%22.7%22.93%15.2%27.431.09Pankaj Tibrewal
Axis Small Cap Fund29-Nov-138,1796438%56.61%33.23%23.56%----23.211.19Anupam Tiwari
Nippon India Small Cap Fund16-Sep-1018,83213524%75.73%32.17%23.68%27.01%--27.970.96Samir Rachh
Union Small Cap Fund10-Jun-145925129%63.29%31.82%19.59%----25.011.02Vinay Paharia, Hardick Bora
ICICI Prudential Smallcap Fund18-Oct-073,4506333%62.35%31.71%19%18.11%--28.360.94Harish Bihani
DSP Small Cap Fund14-Jun-078,7866831%61.73%30.36%17.6%24%--26.880.95Vinit Sambre & Resham Jain
Invesco India Smallcap Fund30-Oct-181,2914835%62.09%30.19%------26.060.96Taher Badshah & Pranav Gokhale
Tata Small Cap Fund12-Nov-181,8974040%72.28%30.17%------24.631.03Chandraprakash Padiyar & Satish Chandra Mishra


Value Research & Morning Star Ranking

BOI AXA and Axis small cap have maximum rating of 5 while Union, ICICI Prudential, DSP and Invesco India have least rating of 3 among the top 10 small cap funds. BOI AXA has maximum Morningstar rating of 5 and Quant small cap fund has the least rating of 2, among the top 0 small cap funds.


Assets Under Managements (AUM) of various Small Cap Mutual Funds

Among the top 10 small cap fund houses, ,Nippon India has an asset of 18,832 Crores, followed by DSP small cap fund at 8,786 Crores and BOI AXA has the least with 213 Crores.



From the plot we can see that Quant small cap fund has the highest 1 year return of 90.16% while Axis small Cap has the lowest 1 year return of 56.61%.

BOI AXA has highest 3 year return at 40.63% while Invesco India has lowest returns of 30.19%.


*Data as on 21st January 2022



Finally, the decision to invest in small-cap funds depends on investment goals investment time period and most importantly investors risk appetite. These are best for aggressive investors with high-risk tolerance and longer holding periods. Also, have a look at various other AMC Profiles. If you need any assistance / help regarding Mutual Funds in India & How To Invest In Mutual Funds Feel free to contact Wealth Baba – Financial Planner & Investment Advisor in India. We will try to help you out in the best possible way.

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