TOP 3 Best Small Cap Mutual Funds to Invest in 2025
Top 3 Best Small Cap Mutual Funds to invest in 2025: You must set financial goals before investing in any financial instruments. Attach these goals to your mutual fund investment.
This is important to make sure that it aligns with your needs. This ensures it is best-suited for your needs. A mutual fund investment needs financial goals to be effective.
Redeeming or withdrawing your mutual fund investment is as important as investing. Do this when you have reached your financial goals or your financial goals are near.
Both investment and redemption should be given equal importance. Taking the risk and investing without any financial objectives is of no use.
When it comes to wealth creation, small-cap mutual funds have consistently delivered impressive returns over the long term. If you are planning your investment strategy for the next decade, identify the best small-cap mutual funds. This is crucial.
Make sure to focus on the options available to invest in 2025. This blog post will take you through the Top 3 Best Small Cap Mutual Funds you should consider. It will address some of your questions. It will also help you plan your journey towards substantial wealth creation.
What is a Small Cap Mutual Fund?
Small-cap mutual funds invest in companies ranked beyond the top 250 in terms of market capitalisation. These companies have high growth potential, but they also come with relatively higher risk compared to large-cap or mid-cap companies. However, if you have a long-term investment horizon, small-cap funds can offer significant wealth accumulation.
Why Small Cap Mutual Funds?
- Larger investment basket: Small cap funds provide a greater basket of investment opportunities as compared to large cap, mid-cap or sectoral funds;
- Better growth prospect: Small cap companies have better growth prospects for the capacity of growing at a faster pace;
- Faster economic recovery: It can grow at a faster pace compared to large and mid-cap funds. This growth is noticeable during economic recoveries. We witnessed this during the last PANDEMIC situation.
- Macro-economic factors: The returns from the small-cap stocks are influenced more by their internal issues. They are less affected by the macro-economic factors.
Key points to decide the best Small Cap Mutual Funds in India
The following key points have been taken into consideration while deciding the top 3 best Small Cap Mutual Funds to invest in 2025 in India:
- Long Term(5-10 yr): We have considered funds that have been operating in the market for the last 5 to 10 years and doing reasonably well in this cycle.
- Asset Under Management(AUM): Funds having a minimum AUM of more than 10,000 Cr have been considered.
- Expense Ratio: Funds which have a minimum expense ratio as low as 1% have been taken into consideration.
- 15% minimum CAGR: Funds whose compounded annual growth rate (CAGR) are less than 15% for the last 5 years have been kept out of the list instantly. We considered funds which generated a minimum 15% CAGR over the previous 5 to 10 years investment horizon.
- Low Beta value: Beta measures the underlying risk of the scheme as compared to the overall market risk. It changes in tandem with market risk. Therefore, a low beta value has been considered for the selection.
TOP 3 Best Small Cap Mutual Funds to Invest in 2025
Here are the Top 3 Best Small Cap Mutual Funds to invest in 2025. This is based on past performance, portfolio quality, fund management, and consistency.
1. Nippon India Small Cap Fund
- Assets Under Management (AUM): ₹55,490+ Crore (as of 31.03.2025)
- Benchmark: NIFTY Small-cap 250 Total Return Index
- Expense Ratio: 0.73%
Performance:
- 5-Year CAGR: 38.81%
- 7-Year CAGR: 18.84%
- 10-Year CAGR: 20.55%
Risk-Adjusted Metrics:
- Beta Value: 0.84 (lower than 1 means relatively less volatile than market)
- Sharpe Ratio: 0.82 (higher is better — indicates better risk-adjusted returns)
- Treynor’s Ratio: 0.15
- Jensen’s Alpha: 3.74 (positive alpha shows strong out performance over benchmark)
Key Features:
- ✅ Diversified portfolio across multiple sectors
- ✅ Consistent alpha generation over the years
- ✅ Ideal for investors seeking aggressive growth with long-term horizon
| Parameter | Details |
|---|---|
| Fund Name | Nippon India Small Cap Fund |
| Assets Under Management (AUM) | ₹55,490+ Crore (as of 31.03.2025) |
| Benchmark | NIFTY Small-cap 250 Total Return Index |
| Expense Ratio | 0.73% |
| Performance | 5-Year CAGR: 38.81% 7-Year CAGR: 18.84% 10-Year CAGR: 20.55% |
| Risk-Adjusted Metrics | Beta: 0.84 Sharpe Ratio: 0.82 Treynor’s Ratio: 0.15 Jensen’s Alpha: 3.74 |
| Key Features | ✅ Diversified portfolio across multiple sectors ✅ Consistent alpha generation ✅ Suitable for long-term aggressive growth |
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2. SBI Small Cap Fund
- Assets Under Management (AUM): ₹30,828+ crore
- Benchmark: NIFTY Small-cap 250 Total Return Index
- Expense Ratio: 1.58%
Performance:
- 5-Year CAGR: 28.44%
- 7-Year CAGR: 15.10%
- 10-Year CAGR: 18.33%
Risk-Adjusted Metrics:
- Beta Value: 0.73 (lower than 1 means relatively less volatile than market)
- Sharpe Ratio: 0.61 (higher is better — indicates better risk-adjusted returns)
- Treynor’s Ratio: 0.11
- Jensen’s Alpha: 4.07 (positive alpha shows strong out-performance over benchmark)
Key Features:
- ✅ Diversified portfolio across multiple sectors
- ✅ Consistent alpha generation over the years
- ✅ Suitable for investors seeking aggressive growth with minimum 7 years of investment horizon
| Parameter | Details |
|---|---|
| Fund Name | SBI Small Cap Fund |
| Assets Under Management (AUM) | ₹30,828+ Crore |
| Benchmark | NIFTY Small-cap 250 Total Return Index |
| Expense Ratio | 1.58% |
| Performance | 5-Year CAGR: 28.44% 7-Year CAGR: 15.10% 10-Year CAGR:18.33% |
| Risk-Adjusted Metrics | Beta: 0.73 Sharpe Ratio: 0.61 Treynor’s Ratio: 0.11 Jensen’s Alpha: 4.07 |
| Key Features | ✅ Diversified portfolio across multiple sectors ✅ Consistent alpha generation ✅ Ideal for long-term investors (min. 7 years) |
3. Quant Small Cap Fund
- Assets Under Management (AUM): ₹24,892+ crore
- Benchmark: NIFTY Small-cap 250 Total Return Index
- Expense Ratio: 0.68%
Performance:
- 5-Year CAGR: 48.10%
- 7-Year CAGR: 32.03%
- 10-Year CAGR: 19.67%
Risk-Adjusted Metrics:
- Beta Value: 0.94 (lower than 1 means relatively less volatile than market)
- Sharpe Ratio: 0.8 (higher is better — indicates better risk-adjusted returns)
- Treynor’s Ratio: 0.16
- Jensen’s Alpha: 3.17 (positive alpha shows strong out-performance over benchmark)
Key Features:
- ✅ Well diversified portfolio across multiple sectors
- ✅ Consistent alpha generation over the years
- ✅ Suitable for investors seeking high returns with minimum 5 years of investment horizon
| Parameter | Details |
|---|---|
| Fund Name | Quant Small Cap Fund |
| Assets Under Management (AUM) | ₹24,892+ Crore |
| Benchmark | NIFTY Small-cap 250 Total Return Index |
| Expense Ratio | 0.68% |
| Performance | 5-Year CAGR: 48.10% 7-Year CAGR: 32.03% 10-Year CAGR: 19.67% |
| Risk-Adjusted Metrics | Beta: 0.73 Sharpe Ratio: 0.61 Treynor’s Ratio: 0.11 Jensen’s Alpha: 4.07 |
| Key Features | ✅ Well diversified portfolio across multiple sectors ✅ Consistent alpha generation ✅ Ideal for long-term investors (min. 5 years) |
TOP 3 Best Performing Small Cap Mutual Funds in India to Invest in 2025: Performance Comparison
| Parameter | Nippon India Small Cap Fund | SBI Small Cap Fund | Quant Small Cap Fund |
|---|---|---|---|
| AUM (as of 31.03.2025) | ₹55,490+ Crore | ₹30,828+ Crore | ₹24,892+ Crore |
| Benchmark | NIFTY Small-cap 250 TRI | NIFTY Small-cap 250 TRI | NIFTY Small-cap 250 TRI |
| Expense Ratio | 0.73% | 1.58% | 0.68% |
| 5-Year CAGR | 38.81% | 28.44% | 48.10% |
| 7-Year CAGR | 18.84% | 15.10% | 32.03% |
| 10-Year CAGR | 20.55% | 18.33% | 19.67% |
| Beta | 0.84 | 0.73 | 0.73 |
| Sharpe Ratio | 0.82 | 0.61 | 0.61 |
| Treynor’s Ratio | 0.15 | 0.11 | 0.11 |
| Jensen’s Alpha | 3.74 | 4.07 | 4.07 |
| Key Features | ✅ Diversified portfolio✅ Consistent alpha generation✅ Suitable for long-term aggressive growth | ✅ Diversified portfolio✅ Consistent alpha generation✅ Ideal for long-term investors (min. 7 years) | ✅ Well-diversified portfolio✅ Consistent alpha generation✅ Ideal for long-term investors (min. 5 years) |
Frequently Asked Questions (FAQs):
What is the best small cap mutual fund?
While “best” can be subjective, it is often based on historical returns, portfolio quality, and consistency. The Nippon India Small Cap Fund is highly regarded for its performance. The SBI Small Cap Fund also stands out as a top small-cap mutual fund in India for 2025. Still, your choice should also align with your risk appetite and financial goals.
Which small-cap fund is best for 5 years in India?
The Nippon India and SBI Small Cap mutual Funds offer a balanced mix of risk and return for a 5-year horizon. However, small caps are ideally suited for investment horizons of 7-10 years. Long-term investments help to ride out market volatility and benefit from compounding growth.
Which SIP gives 40% return?
Historically, small-cap mutual funds have delivered exceptional returns, sometimes exceeding 40% annually during strong bull runs.
However, it’s very important to understand that a consistent 40% return is unrealistic over long periods. Funds like Nippon India Small Cap Fund and SBI Small Cap Fund have shown strong performance in certain years. However, investors should not expect such high returns every year, but it will definitely help you in achieving significant returns over a longer investment horizon
Can I get 15% return on SIP with Best Small Cap Mutual Funds in India?
Yes, achieving a 15% annualized return through SIP investments in the best performing small cap mutual funds is possible. This is especially true over a long-term period like 10 years. Small-cap funds, owing to their growth potential, can yield high double-digit returns, though they come with higher volatility.
Best Small Cap Mutual Funds 2025: How to get 50 lakhs in 5 years with SIP?
To accumulate ₹50 lakhs in 5 years with SIP, you need a clear strategy. Assuming a high annual rate of return of 15%, you would need to invest approximately ₹57,000 per month through SIPs. Here’s a simple estimation:
- Monthly SIP: ₹57,000
- Tenure: 5 years
- Expected CAGR: 15%
- Maturity Amount: ~₹51.12 lakhs
Remember, 15% returns are achievable but not guaranteed, especially over shorter periods like 5 years. It’s better to plan conservatively and invest more or for a longer period if possible.
Why Invest in Best Small Cap Mutual Funds for Long Term?
Best small cap mutual funds for long term investing offer the following advantages:
- Higher Growth Potential: Early-stage companies can grow faster than established giants.
- Power of Compounding: A 10-year horizon can maximize compounding benefits.
- Market Inefficiencies: Small caps are less researched, giving fund managers a chance to find hidden gems.
However, it is crucial to note that small caps are highly volatile. Only those investors who can stomach short-term fluctuations should invest heavily in small-cap funds.
One should not panic for the short term market volatility. As I have already mentioned, your investment in small cap mutual funds must be linked with your financial goals. Your investment horizon should not be less than 5 years in the case of small cap funds. Only then small-cap mutual funds can create a long term wealth over the years.
How to Select the Best Small Cap Mutual Funds in India?
Here’s a checklist to help you pick the best small cap mutual funds in India:
- Fund Manager’s Experience: An experienced fund manager can make a huge difference.
- Consistency of Returns: Look beyond the latest 1-year return and check 5-year, 7 -year and 10-year CAGR.
- Risk Management Practices: Funds that manage downside risks well are preferable.
- Portfolio Quality: Focus on funds with a diversified and high-quality stock portfolio.
- Expense Ratio: Lower the expense ratio, better the returns for investors.
Conclusion on Best Small Cap Mutual Funds in India?
Investing in the best small cap mutual funds 2025 can potentially create enormous wealth over the next 10 years. However, the journey requires patience, a long-term view, and the discipline to continue SIPs even during market downturns.
Nippon India Small Cap Fund is a strong contender for 2025. It ranks among the Top 3 Small Cap mutual funds. SBI Small Cap Fund is also a strong contender. However, funds like Quant Small Cap Fund also offers excellent risk-adjusted returns.
If you align your investment goals wisely, and stay invested for the long term, you can benefit significantly. The best performing small cap mutual funds can be your ticket to impressive financial growth.
Stay invested, stay patient, and let the power of compounding work its magic for you!
Disclaimer: Mutual fund investments are subject to market risks. Please consult your financial advisor before investing.
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