Investing in mutual funds is the smartest way to grow your money over time. Out of all types of mutual funds, small-cap mutual funds are getting a lot of attention in 2025. Why is that? Because they invest in small and growing companies that have the chance to give high returns in the future.
If you are someone who wants to earn more and doesn’t mind taking a bit of risk, then small-cap mutual funds can be a good choice for your investment plan.
In this article, we will look at the Best Small-Cap Mutual Funds in India for 2025, how they work, and why they are worth keeping an eye on.
What are Small-Cap Mutual Funds?
Small-cap mutual funds mainly invest in smaller companies that are not in the top 250 based on market capitalization, which is the company size on the stock exchange. These companies are usually still growing and have high potential.
These funds can give high returns if the market does well, but they also come with more ups and downs compared to large-cap or mid-cap mutual funds.
Small-cap mutual funds are best known for long-term investors who want high growth and can handle short-term market changes.
Why Choose Small-Cap Mutual Funds in 2025?
The year 2025 looks promising for India’s economy. With more government spending, better infrastructure, faster digital growth, and higher demand within the country, small-cap mutual funds could do very well. That is why small companies often grow the most when the economy is strong.
Here’s why investing in small-cap mutual funds in 2025 is a smart idea:
1. High Growth Potential
Small-cap stocks can grow much faster than big companies because they are still in the early stages of business. As they grow their products, services, or customer base, their value may increase quickly.
2. Diversification
Small-cap mutual funds invest in many different small companies, often from new or fast-growing sectors. This gives you a wide range of investments that large-cap funds might not offer.
3. Early Investment Opportunities
By investing in small-cap funds, you get a chance to support companies before they become large and popular. If they succeed, your investment could grow a lot over time.
Best Small-Cap Mutual Funds in India for 2025
Below are some of the top-performing small-cap mutual funds that have shown promising trends and consistent performance:
1. Nippon India Small Cap Fund
- 3 year Return: As of early 2025, if you had invested in this fund 3 years ago, your money would have grown by around 35% in total.
- Expense Ratio: You pay a small yearly fee of about 0.79% to manage your investment in a direct plan.
- Why It Matters: This fund invests in a mix of small companies that have strong businesses and good growth potential. It regularly performs better than its benchmark and is managed by a skilled and stable team.
2. SBI Small Cap Fund
- 3 year Return: Over the last 3 years, this fund gave around 32% return on investment.
- Expense Ratio: It charges a yearly fee of about 0.76% to handle your money.
- Why It Matters: SBI is a trusted name in mutual funds and banking sectors as well. This fund has a strong history of giving good returns, even when the stock market is going up and down. The fund manager carefully studies each company and picks small businesses with solid fundamentals and good future potential.
3. Kotak Small Cap Fund
- 3 year Return: If you had invested in this fund 3 years ago, your money would have grown by around 30% in total.
- Expense Ratio: You pay a small yearly fee of about 0.68% to manage your investment in a direct plan.
- Why It Matters: This fund is known for managing risks smartly and following a strict investment process. It mainly invests in companies from fast-growing areas like chemicals, manufacturing, and healthcare. These sectors have strong demand and good long-term opportunities in investment.
4. Quant Small Cap Fund
- 3 year Return: This fund gave the highest return in the category around 40% in 3 years.
- Expense Ratio: You pay a small yearly fee of about 0.71% to manage your investment in a direct plan.
- Why It Matters: It is an aggressive small-cap mutual fund that focuses on high returns. It quickly adjusts its stock choices based on market conditions and trends. The fund is best suited for investors who are ready to take higher risks in exchange for the possibility of higher gains.
5. Axis Small Cap Fund
- 3 year Return: Your investment in this fund would have grown by around 27% in 3 years.
- Expense Ratio: It has a yearly management fee of about 0.68%.
- Why It Matters: Axis Small Cap Fund focuses on picking high-quality companies with strong management and clean records. It avoids very risky or unstable stocks. This fund is a good option for investors who are looking for steady and reliable returns in the small-cap category.
How to Choose the Right Small-Cap Fund?
Here are some simple tips to help you choose the best small-cap fund for your investment:
- Performance Track Record: Check how the fund has performed in the past 3 to 5 years. Compare it with its benchmark to see if it’s doing better.
- Expense Ratio: A lower expense ratio means you get to keep more of your returns. Always choose funds with lower charges.
- Fund Manager Experience: A skilled and experienced fund manager can manage risks better and grow your money smarter.
- Portfolio Diversification: Choose a fund that invests in many different companies. This helps reduce overall loss when the market is going up and down.
- Risk Appetite: Small-cap funds are not for safe or low risk investors. They are more suitable for those who can handle market’s ups and downs.
Who Should Invest in Small-Cap Mutual Funds?
Small-cap mutual funds are a good choice for:
- Young investors who want to invest for many years.
- People who don’t panic during short-term market ups and downs.
- Those who want to grow their wealth over 5 to 10 years.
- Investors who want to add variety to their mutual fund portfolio by diversifying.
Avoid these funds if you want short-term safety or don’t like taking risks.
Risks to Consider
Small-cap mutual funds can give high returns, but they also carry some risks:
- High Market Volatility – Prices can go up and down quickly
- Liquidity Risks – It may be harder to sell some stocks quickly
- Company-specific Risks – Small companies are more affected by business changes.
That is why investing for the long-term and using SIPs (Systematic Investment Plans) is the best way to manage these risks and enjoy the benefits of compounding over time.
Conclusion
Small-cap mutual funds are a good option if you want to grow your money faster in 2025. These funds invest in smaller companies that have the potential to grow quickly. However, they can also be more risky and may go up and down in value more often.
You need to be patient and invest wisely, but they can give good returns. Always choose the fund with a good past performance, invest regularly, and stay invested for a long time. Happy investing!
FAQs
Are small-cap mutual funds safe to invest in 2025?
Small-cap mutual funds are not as safe as large-cap or mid-cap funds. They go up and down more often but can give higher returns in the long run.
How long should I stay invested in a small-cap mutual fund?
It is best to stay invested in a small-cap mutual fund for 5 to 10 years. This gives time to your money to grow and help you manage the market’s ups and downs.
Can beginners invest in small-cap mutual funds?
Yes, beginners can invest in small-cap mutual funds. It is better to start with small amounts using SIPs and increase slowly as you learn more about the market.
What is the minimum amount needed to invest in small-cap funds?
Most small-cap mutual funds let you start a SIP with just ₹500 to ₹1,000 per month, which makes it easy to begin.
Do small-cap mutual funds pay dividends?
Some small-cap funds may offer dividend options, but most investors choose growth options as they build more wealth over time.