Small-cap mutual funds can be a game-changer for investors seeking aggressive growth. These funds invest in companies with smaller market capitalizations, often below ₹ 5,000 crore, which have the potential to grow exponentially. While small-cap funds offer high returns, they come with increased volatility and risk, making them ideal for investors with a long-term horizon and a high-risk appetite. In this article, we’ll explore what makes small-cap funds unique, highlight the Best Small-cap Mutual Funds to Invest in for 2025, and answer frequently asked questions to help you make informed decisions.
What Are Small-Cap Mutual Funds?
Small-cap mutual funds primarily invest in companies ranked 251 and below by market capitalization. These companies are often in the early stages of growth, with significant potential to scale up, making them highly attractive for long-term investors.
Key Features:
- Growth Potential: Small-cap funds can deliver higher returns than mid-cap or large-cap funds due to the untapped potential of the companies they invest in.
- Risk Profile: High; small-cap stocks are more volatile and sensitive to market movements.
- Investment Horizon: Best suited for a long-term horizon of 5–7 years or more to ride out short-term volatility.
![Best Small-Cap Mutual Funds to Invest in 2025 [High-Growth Investments]](https://myinvestmentideas.com/wp-content/uploads/2025/01/Best-Small-Cap-Mutual-Funds-to-Invest-in-2025-High-Growth-Investments.jpg)
Why Choose Small-Cap Funds?
Small-cap funds are ideal for investors looking to take advantage of emerging companies with significant upside potential. They should be part of your diversified portfolio, adding exposure to high-growth sectors.
Top 5 Small-Cap Mutual Funds to Invest in 2025
Here are the best small-cap mutual funds to consider for 2025, based on historical performance, portfolio quality, and expert reviews:
| Fund Name | 1-Year Return | 3-Year Return | 5-Year Return |
|---|---|---|---|
| Bank of India Small Cap Fund | 16% | 20% | 33% |
| Nippon India Small Cap Fund | 14% | 24% | 32% |
| Canara Robeco Small Cap Fund | 11% | 18% | 30% |
| Edelweiss Small Cap Fund | 16% | 22% | 30% |
| Tata Small Cap Fund | 20% | 23% | 29% |
Common Questions About Small-Cap Mutual Funds
- Which small-cap mutual fund is best for 2025? Funds like Bank of India Small Cap Fund and Nippon India Small Cap Fund are excellent choices due to their robust performance and focus on high-growth sectors.
- What is the ideal investment horizon for small-cap funds? Small-cap funds require a long-term investment horizon of at least 5–7 years to adjust for market volatility and realize their growth potential.
- How do small-cap funds differ from mid-cap funds? Small-cap funds invest in smaller, emerging companies, offering higher growth potential but with greater risk. Mid-cap funds focus on relatively larger and more stable companies, striking a balance between growth and stability.
- Are SIPs recommended for small-cap funds? Yes, SIPs (Systematic Investment Plans) are an effective way to invest in small-cap funds. They help mitigate risks by averaging out the cost of investment over time.
SIP Returns of Top Small-Cap Funds
For those considering SIPs, here’s how small-cap funds have performed through systematic investments:
| Fund Name | SIP Returns (3 Years) | SIP Returns (5 Years) |
|---|---|---|
| Bank of India Small Cap Fund | 24% | 30% |
| Nippon India Small Cap Fund | 26% | 33% |
| Canara Robeco Small Cap Fund | 19% | 28% |
| Edelweiss Small Cap Fund | 25% | 30% |
| Tata Small Cap Fund | 25% | 31% |
Risks of Investing in Small-Cap Funds
Small-cap funds can be highly rewarding but come with significant risks:
- Volatility: Small-cap stocks are highly sensitive to market fluctuations, resulting in sharp price swings.
- Liquidity Risks: Lower trading volumes can make it challenging to buy or sell shares.
- Economic Sensitivity: Small-cap companies are more vulnerable to economic downturns, impacting their performance.
Pro Tip: Diversify your portfolio and use SIPs to manage risks effectively.
Conclusion: Small-cap mutual funds are an excellent choice for investors with a high-risk appetite and a long-term perspective. With funds like Bank of India Small Cap Fund, Nippon India Small Cap Fund, and Edelweiss Small Cap Fund, you can tap into the immense growth potential of emerging companies in 2025.
Like I keep reiterating every time, invest in these funds based on your financial goals, tenure of investment, and risk tolerance.
- 10 Worst Performing Mutual Funds in the Last 3 Years (-3% to +3%) - February 8, 2025
- Types of Mutual Funds Explained – Equity, Debt, Hybrid & More - February 8, 2025
- Hexaware Technologies IPO – GMP, Financials, Expert Analysis and Review - February 7, 2025
Discover more from Myinvestmentideas.com
Subscribe to get the latest posts sent to your email.
Sir should I continue the quant small cap fund sip or stop it and invest in bank of india small cap or other fund??
Hello Manish, Yes Quant Smallcap mutual fund is underperforming. You can wait for some more time before you take a call to exit.
Sir
What your opinion on Mahindra manulife small cap growth lumpsum investment
All Smallcap funds have crashed in the last few months including this fund. Pls hold for some more time
Sir what’s your views on HDFC Small Cap Fund in future?
This fund performed well in medium and long term. In short term of 1 year, it is underperforming. You can continue to invest for some more time before taking a call
Hi Suresh Ji,
Many thanks for informative blogs for Financial savings. Im the regular follower.
Could you suggest, during these down market days, what are the best stocks for one-time investment for longer period ( ~10 years)?
Hello Ram, I do not analyse stocks very often. As and when I do, I generally post them on this blog.
Quant funds ( small Mid Flex featured in top ranks in some 3 to 4 years similar to Axis few years ago and now those funds are relegated to low rankings. Can we continue on this funds if our goal is for long term say 5 to 10 years or switch to alternate funds
Hello Jagan, Post Quant Fund Manager Front Running Scam, all quant funds have under performed in the last 6 to 9 months, hence we have not considered these funds as part of above article. We need to wait and watch for some more time before we take a decision on this. Even I am investing in Quant Smallcap fund and would wait for few months to take a call.
Good Article
Thank you Thomas