Best Small Cap Mutual Funds | Investment | Mutual Fund |
Best Small Cap Funds: If you’re looking to grow investment portfolio more, small cap mutual funds could be your next big move. These funds, though riskier, have shown extra ordinary performance in recent years. In fact, some of the best small cap funds have delivered returns of up to 43% over the last 5 years, outperforming large cap and mid cap peers.
Best Small Cap Funds Gave Returns Up to 43% in 5 Years – Should You Invest Now?
In this article, we’ll learn what small cap funds are, how they work, and which ones have given the highest returns over 5 years. Whether you’re a old investor or just starting out, understanding these high-performing funds can help you make informed investment decisions.
What Are Small Cap Funds?
Small cap funds are mutual funds that invest primarily in companies ranked below the top 250 listed companies in terms of market capitalization. These companies are typically high-growth firms with immense potential but carry higher volatility compared to large caps.
Key Features of Best Small Cap Mutual Funds:
- Higher growth potential
- Higher volatility and risk
- Ideal for long-term investors
- Suitable for aggressive investment strategies
Best Small Cap Funds With Up to 43% Returns in 5 Years
Let’s take a closer look at the top-performing small cap mutual funds in based on their 5-year annualized returns (as of August 2025):
| Fund Name | 5-Year CAGR (%) | Fund Size (₹ Cr) | Expense Ratio (%) | Minimum SIP (₹) |
|---|---|---|---|---|
| Quant Small Cap Fund | 43.2% | ₹8,200 | 0.75 | ₹500 |
| Nippon India Small Cap Fund | 28.6% | ₹38,500 | 0.87 | ₹100 |
| SBI Small Cap Fund | 26.9% | ₹20,000 | 0.91 | ₹500 |
| Kotak Small Cap Fund | 25.3% | ₹13,400 | 0.79 | ₹500 |
| Axis Small Cap Fund | 23.7% | ₹11,600 | 0.73 | ₹500 |
Note: Returns are CAGR (Compound Annual Growth Rate) over the last 5 years. Past performance is not indicative of future returns.
Why Are Small Cap Funds Performing So Well?
Several factors have contributed to the strong performance of small cap funds:
- Economic Recovery & Domestic Growth: Post-COVID recovery and India’s domestic consumption boom have boosted the earnings of small businesses.
- Government Push for MSMEs: Schemes and incentives for micro, small, and medium enterprises (MSMEs) have led to increased profitability and expansion.
- Increased Retail Participation: Growing investor interest in equity markets has pushed liquidity into small cap stocks.
- Sectoral Rotation: Fund managers are betting on under-researched, high-potential sectors like renewable energy, niche manufacturing, and digital services.
Pros and Cons of Investing in Small Cap Funds
Pros:
- High return potential
- Opportunity to invest in tomorrow’s large caps
- Diversified exposure to emerging businesses
Cons:
- High market volatility
- Longer holding period required (5+ years)
- Higher sensitivity to market cycles
Who can Invest in Small Cap Mutual Funds?
Small cap funds are best suited for:
- Aggressive investors seeking higher returns
- Young investors with a longer investment horizon
- Investors with high risk tolerance
- Goal-based investors aiming for wealth creation over the long term (retirement, child’s education, etc.)
Important Point for Investing in Small Cap Funds
- Stay Invested for the Long Term: Minimum 5–7 years is ideal to ride out volatility.
- SIP Over Lumpsum: Regular SIPs help average out market fluctuations.
- Review Fund Manager Performance: A consistent fund manager with a strong track record is crucial.
- Diversify: Don’t put all your money in small caps. Balance it with large and mid cap exposure.
Conclusion
The performance of the best small cap mutual funds in India over the last 5 years has been nothing short of impressive. With returns as high as 43% CAGR, these funds have proven their potential to deliver significant long-term gains. However, they come with higher risks and require patience and disciplined investing.
If you’re able to bear some volatility for the chance of superior returns, small cap funds can be a great addition to your portfolio. Always consult with a financial advisor before making investment decisions.
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