Do you want to boost the profits on your investments? Mutual funds with small caps could be the best option. These funds make investments in start-up companies that have the potential to dominate markets in the future. They have the chance for significant long-term gains, but they also come with a higher risk.
The best 5 small-cap mutual funds in India for 2025 and their characteristics, track record, and reasons for being unique among hundreds of alternatives will be discussed here.
What Are Small Cap Mutual Funds?
Small cap funds must allocate at least 65% of their assets to businesses with market capitalizations below the top 250, per SEBI regulations. Despite being smaller, these businesses are frequently more nimble and have the capacity to expand quickly.
Why Invest in Small Cap Fund ?
1) Higher potential for long-term returns
2) Being exposed to new markets and specialized companies
3) Diversification of the portfolio beyond large and mid-cap stocks
Top 5 Small Cap Mutual Funds in India (2025)
1. Quant Small Cap Fund
- 3-Year CAGR: ~34.8%
- Fund Manager: Sanjeev Sharma
- Why It’s a Top Pick ?
1) Tactical sector rotation with an aggressive approach
2) Outstanding success despite volatile markets
3) Strong alpha-producing potential for experienced investors
2. Nippon India Small Cap Fund
- 3-Year CAGR: ~30.2%
- Fund Manager: Dhrumil Shah
- Why It’s a Top Pick ?
1) Amongst the largest and most well-known small-cap funds
2) Spread among more than 100 equities, which lowers the risk of single stocks
3) A solid track record and high level of confidence among regular investors
3. SBI Small Cap Fund
- 3-Year CAGR: ~29.7%
- Fund Manager: R. Srinivasan
- Why It’s a Top Pick ?
1) A methodical and cautious approach to small-cap investments
2) A collection of high quality stocks with solid foundations
3) Perfect for investors that are relatively aggressive
4. Kotak Small Cap Fund
- 3-Year CAGR: ~27.5%
- Fund Manager: Pankaj Tibrewal
- Why It’s a Top Pick ?
1) Concentrates on financially sound small enterprises that can grow.
2) A plan that balances risk and reward
3) Excellent for investors seeking high-quality exposure to tiny stocks
5. Axis Small Cap Fund
- 3-Year CAGR: ~26.1%
- Fund Manager: Anupam Tiwari
- Why It’s a Top Pick ?
1) Promotes enterprises with minimal debt and excellent quality
2) A small-cap, conservative fund with a solid governance filter
3) Fit for investors who can tolerate a certain amount of risk.
Comparison Table: Best Small Cap Funds (2025)
| Fund Name | 3-Year CAGR | Risk Level | Best For |
|---|---|---|---|
| Quant Small Cap Fund | ~34.8% | Very High | Aggressive investors, alpha chasers |
| Nippon India Small Cap Fund | ~30.2% | High | Diversification & retail investors |
| SBI Small Cap Fund | ~29.7% | Moderately High | Quality-focused long-term holders |
| Kotak Small Cap Fund | ~27.5% | High | Balanced risk-reward seekers |
| Axis Small Cap Fund | ~26.1% | Moderate | Risk-conscious small cap investors |
Performance data as of Q1 2025. Past returns do not guarantee future performance.
Benefits of Investing in Small Cap Funds
1) High Growth Potential: Small businesses can expand quickly.
2) Priority Access to Up-and-Coming Leaders: Invest before they grow into large-cap or mid-cap giants.
3) Diversify your portfolio to lessen your reliance on blue-chip stocks.
4) Returns That Beat Inflation: Long-term compounding can perform noticeably better than inflation.
Risks to Be Aware Of
1) High Volatility: Depending on market mood, prices might fluctuate significantly.
2) Illiquidity Risk: Low trade volumes may be a concern for smaller businesses.
3) Needs Patience: Unsuitable for low-risk profiles or short-term objectives
4) Extended Time Horizon for Investment: Suggested for more than seven years
Conclusion
Particularly if you’re prepared to deal with volatility in the markets, small-cap mutual funds can be effective instruments for building long-term wealth. The previously mentioned funds were chosen for their steady returns, strong management, and potential for future growth, making them some of the best-performing small-cap mutual funds in India for 2025.
Think about including a small-cap fund in your portfolio if you have a long investing horizon and a high risk tolerance. As usual, before making any investment decisions, get advice from a financial professional. This is just an suggestion, not an advice do research and then invest.
