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Aditya Birla Capital LimitedAditya Birla Capital Limited (“ABCL”) is a listed systemically important non-deposit taking Non-Banking Financial Company (NBFC) and the holding company of the financial services businesses. ABCL and its subsidiaries/JVs provides a comprehensive suite of financial solutions across Loans, Investments, Insurance, and Payments to serve the diverse needs of customers across their lifecycles. Powered by over 61,600 employees, the businesses of ABCL have a nationwide reach with over 1,690 branches and more than 200,000 agents/channel partners along with several bank partners.
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What is a Small-Cap Mutual Fund?
A small-cap fund is an open-ended equity scheme which invests a minimum of 65% of its portfolio in companies listed in the small-cap category.
Advantages of Small-Cap Mutual Fund
Long-term growth
As small-cap companies grow, you can earn attractive returns if you stay invested with a long-term horizon.
Portfolio diversification
Enjoy a diversified portfolio of small-cap stocks and securities for mitigating risks and enhancing the return potential.
Professional management
Benefit from expert fund management by professionals who can pick quality securities and manage them actively to generate good returns.
Highest Growth Potential
Offer the greatest potential for substantial returns due to the high growth trajectory of emerging companies
Explore Small-Cap Mutual Fund
Most Popular
AUM: 23427(Cr)
Risk: Very High
- MIN. INVESTMENT 500
- 5 YRS RETURNS 33.32%
- Invest (Per Month) ₹10000
- Get (30 Yrs) ₹24,850*
*Projections/estimations is backtested using historical data.
Most Popular
- AUM: 23427(Cr)
- Risk: High
- MIN. INVESTMENT 1000
- 5 YRS RETURNS 33.32%
- Invest (Per Month) ₹15000
- Get (30 Yrs) ₹34,850*
*Projections/estimations is backtested using historical data.
Small-Cap Mutual Fund Returns Calculator
REGULAR INVESTMENT
SIP
Invest systematically in regular amounts and build a corpus with a disciplined investing habit.
ONE TIME INVESTMENT
Lump sum
Invest once with the facility of lump sum investing and save at your will. Time the market correctly and earn good returns.
Total Amount Invested
₹ 0
after 30 years you will get a return of
₹ 0
Disclaimer: Projections/estimations is backtested using historical data.
Total Amount Invested
₹ 0
after 30 years you will get a return of
₹ 0
Disclaimer: Projections/estimations is backtested using historical data.
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Understanding Small-Cap Mutual Fund
Table of Contents
What are small-cap funds?
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Small-cap funds are equity-oriented schemes that invest in small-cap companies' equity securities. Based on their market capitalisation, such companies are ranked 251 and above on the stock exchange .
What are the features of small-cap funds?
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Minimum 65% allocation in small-cap securities
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Very high risk-return trade-off
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Suitable for investors with a long-term investment horizon
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Invest through SIPs or lump sum
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Earn tax-free returns up to Rs.1 lakh if you stay invested
What is the meaning of market capitalisation?
Market capitalisation means the total value of a company’s shares
The total number of listed shares is considered for calculation
The current market value is taken to calculate the market cap
Formula -
Market capitalisation = total number of outstanding shares X current market value per share
What should be the investment horizon for small-cap funds?
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Small-cap funds have the highest risk profile in equity funds categorised based on market capitalisation
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They are prone to short-term volatility and negative investment returns
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To avoid short-term volatility, a long-term investment horizon is recommended
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A long-term horizon also helps earn attractive investment returns as small-cap companies grow
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You also get a tax benefit on staying invested for a longer tenure
What is the tax implication of small-cap funds?
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Returns up to Rs.1 lakh are tax-free if you stay invested for 12 or more months
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Returns exceeding Rs.1 lakh are taxed at 10%
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For redemption within 12 months, returns are taxed at 15%
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Dividends earned, if any, are taxed at your income tax slab rate
What are the payout options?
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Dividend option
Earn dividends on your investment at regular intervals
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Growth option
Accumulate the returns over the investment tenure and get a lump sum amount on redemption
Who should invest in small-cap funds?
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Investors seeking long-term growth of capital
Small-cap funds are fairly reactive to market fluctuations. However, they also have a high return potential in the long run. Staying invested can work wonders for small-cap fund investors.
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Investors with high risk appetite
Since small-cap funds are high-risk funds, they are better suited to investors with a great risk appetite. Seasoned investors rather than novices are usually the ones recommended for these funds.
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Investors who want diversity
Investors already involved in the market looking for higher risk-return potential can invest a smaller portion of their portfolio in small-cap funds to seek returns while hedging them with other safer investments.
FAQs On Small-Cap Mutual Fund
Being equity-focused, small-cap funds carry a significant amount of risk. As compared to large-cap funds , small-cap funds carry higher risk. They are meant for investors with a higher risk tolerance.
Small-cap funds suit investors with a considerably high risk appetite and longer investment horizon (5+ years).
Small-cap funds invest a minimum of 65% of their portfolio in small-cap equity securities.
The risk factor is similar for mid-cap and small-cap funds, and so is the ideal investment horizon. However, small-cap funds offer a slightly higher return potential which comes at a slightly higher volatility. The choice between the two thus depends on your risk tolerance level.
The market capitalisation of companies that small-cap funds invest in is generally less than ₹5000 Cr.
While large-cap funds invest in companies with large market capitalisation and small caps in smaller, upcoming companies with small capitalisation; mid-caps lie somewhere in between. The risk factor goes in an ascending fashion from large-cap to small-cap, while the potential for returns is vice versa.
Small-cap funds are not ideally suited for short-term goals. High volatility and risk factors mean that staying invested can give you a better chance at higher returns through market correction and business growth. You can explore plenty of other options for short-term financial goals such as hybrid mutual funds or debt funds . Small-cap funds are more suited to goals spread over 5-7 years.
The main factor in mitigating small-cap fund risks is patience. Short-term volatility might worry you, but the high potential in the long term means that you could get significant returns over the years. You can also hedge your risks by investing small amounts through the SIP mode, and smartly diversifying your overall portfolio with balanced caps. Long-term horizon, patience, and diversification are your best friends in the small-cap fund game.
The most prominent risk associated with small-cap funds is low liquidity, with a liquidity ratio of approximately 25 days as compared to 1.3 days for large-cap funds and 9-11 days for mid-cap funds. The liquidity risk arises due to low trading volume of small-cap stocks.
Hence, investing wisely and waiting patiently for the long term for higher return prospects is important.
The expense ratio or the part of your investment transaction dedicated to administrative and other costs varies from fund to fund. However, as per SEBI regulations, it cannot be higher than 2.50%.
Small-cap equity funds can invest in all companies whose market capitalisation is expected to be in the top 250. Fund managers allocate at least 65% of the holdings in small-cap equities. These funds depend majorly on fund composition.
The value of these funds can rapidly spike in value (double or triple as well), and this comes attached with a considerable risk due to the inherent volatility of small-cap firms.
Small-cap funds are ideally meant for investors with a high risk tolerance.
If you are an investor with a high risk appetite and considerable investment horizon, you can consider investing in small-cap funds for the following advantages.
High returns: Small-cap firms have a high growth potential in the market. These are companies on their way to growing into mid-cap and large-cap companies. Along with high risk of volatility, they also offer high-return potential.
Low NAV: The NAV (Net Asset Value)
of small-cap funds is usually low. This allows you to invest in a greater number of units, which gives you a good chance at high returns in a favourable market.
Diversification opportunity: For a well-balanced portfolio, you may allocate a small part of your investments to small-cap funds. This gives you a balanced and well-hedged opportunity at a high risk-reward potential.
Investing in a small-cap mutual fund provides a key advantage as it delivers outstanding returns, surpassing those offered by large or mid-cap funds.
• Investment risks: It is a well-known fact that small-cap funds carry a significant amount of risk, however some of them also have the potential to oversee risk and provide returns.
• Investment return: With a considerable amount of risk, small-cap funds can play the role of good appreciation potentials in your portfolio. If things work out in the market for your fund, they can work out in your favour as well.
• Investment cost: This refers to the expense ratio of your fund, which is basically the costs your fund charges for management and administration. Since your expense ratio eats into your returns, you need to pick a fund with a lower expense ratio.
• Investment goals: Small-cap funds are good for long-term investment goals, i.e. for an investment horizon of 5+ years, ideally 7-10 years if you really want to fully explore their growth potential.
• Taxation: Returns from small-cap funds are taxed as per the capital gains laws in the Indian Income Tax Act, based on how long you stay invested. Please evaluate the tax outflow before investing.
• Expense Ratio: There are certain expenses that your fund house will charge annually for management and administrative costs, which will eat into your returns and reduce them. Thus, pick a fund with a lower expense ratio.
Small-cap funds are likely to be volatile in the short-run. They are known to provide high returns over a longer holding period, i.e. 5-10 years.
No, small-cap funds carry a high amount of risk. They are better for seasoned investors who understand market movements better and can also stay invested for the long term in anticipation of realising the true potential of small-cap funds.
Types of Equity Mutual Funds
Funds Based On Market Capitalisation
Funds Based On Investment Style
Other Asset Class Funds
ETF Funds
Invest in funds listed and traded on the stock exchange
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Fund of Funds
Mutual funds that invest in other mutual funds both in India and globally
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Hybrid Funds
Get a mix of equity, debt and other asset classes for a diversified portfolio
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Index Fund
Passively-managed mutual funds tracking a particular index
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