Best Small-Cap Mutual Funds for 2025

Best Small-Cap Mutual Funds for 2025

Blog Article

Small cap mutual funds have long been a favorite among investors seeking high growth potential. These funds invest primarily in companies with smaller market capitalizations, typically below ₹5000 crore. While they come with higher risk due to market volatility, they can deliver impressive returns over the long term.

In this guide, we’ll explore some of the best small-cap mutual funds available in 2025, their benefits, and factors to consider when investing in them.

Why Invest in Small-Cap Mutual Funds?

1. High Growth Potential: Small-cap companies are often in their early growth stages and have the potential to expand significantly.


2. Diversification: Investing in small-cap funds offers exposure to lesser-known sectors and industries, diversifying your portfolio.


3. Long-Term Wealth Creation: Despite short-term volatility, small-cap funds tend to outperform large-cap funds over the long term.

Top Small-Cap Mutual Funds for 2025

1. Axis Small Cap Fund
   
   
   
   • Fund Manager: Anupam Tiwari
   
   
   • 3-Year CAGR: 30.6%
   
   
   • Expense Ratio: 0.42%
   
   
   • Key Holdings: Galaxy Surfactants, Narayana Hrudayalaya
   
   
   
   


2. SBI Small Cap Fund
   
   
   
   • Fund Manager: R. Srinivasan
   
   
   • 3-Year CAGR: 27.8%
   
   
   • Expense Ratio: 0.72%
   
   
   • Key Holdings: Blue Star, JK Lakshmi Cement
   
   
   
   


3. Nippon India Small Cap Fund
   
   
   
   • Fund Manager: Manish Gunwani
   
   
   • 3-Year CAGR: 28.3%
   
   
   • Expense Ratio: 0.82%
   
   
   • Key Holdings: Deepak Nitrite, Aarti Drugs
   
   
   
   


4. HDFC Small Cap Fund
   
   
   
   • Fund Manager: Chirag Setalvad
   
   
   • 3-Year CAGR: 29.4%
   
   
   • Expense Ratio: 0.65%
   
   
   • Key Holdings: Sonata Software, Aegis Logistics
   
   
   
   


5. Kotak Small Cap Fund
   
   
   
   • Fund Manager: Pankaj Tibrewal
   
   
   • 3-Year CAGR: 28.1%
   
   
   • Expense Ratio: 0.49%
   
   
   • Key Holdings: KEI Industries, Sheela Foam
   
   
   
   

Factors to Consider When Investing in Small-Cap Funds

1. Risk Appetite: Ensure you’re comfortable with the higher volatility associated with small-cap funds.


2. Investment Horizon: These funds are best suited for long-term investments (5+ years) to ride out market fluctuations.


3. Fund Performance: Evaluate the fund’s historical performance across different market cycles.


4. Expense Ratio: Lower expense ratios can lead to higher net returns.


5. Fund Manager Expertise: A skilled fund manager can navigate the complexities of small-cap investing.

Tax Implications

• Short-Term Gains: If you redeem units within 1 year, gains are taxed at 15%.


• Long-Term Gains: Gains over ₹1 lakh in a financial year (held for more than 1 year) are taxed at 10%.

Who Should Invest in Small-Cap Mutual Funds?

1. Aggressive Investors: Ideal for those willing to take higher risks for potential high returns.


2. Long-Term Planners: Investors with a long-term horizon can benefit from the growth potential of small-cap stocks.


3. Diversification Seekers: A great choice for those looking to add a dynamic component to their portfolio.

Final Thoughts

Small-cap mutual funds are not for the faint-hearted, but with the right approach, they can be a valuable part of your investment strategy. By selecting high-performing funds and maintaining a long-term perspective, you can harness the potential of small-cap funds to achieve significant wealth creation.

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