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Best Small Cap Funds

As the name suggests, a small cap fund is a type of equity mutual fund which invests primarily in stocks and shares of small cap companies. Small cap companies have a comparatively smaller market capitalization between Rs. 10 crores to Rs. 500 crores, but have a very high potential for growth. Small cap companies are lucrative for investors as the shares of such companies can double or even triple in a short span of just a few years. Such funds are highly popular among aggressive investors who seek high returns and are ready to accept the risk.

Benefits of Small Cap Funds

The benefits of small cap funds are:

  • High Liquidity: Small Cap Funds offers the flexibility of high liquidity to investors. Investors can easily liquidate these funds when required. Due to the high demand of these stocks in the market, an investor can sell them whenever the need arises.
  • High Return: Small Cap Funds are made up of stocks of companies which have high potential for growth. All successful big companies were small cap companies at one point of time. Because they have recently entered the market and are providing innovative services, they have the potential to grow successfully into large companies.
  • Attractive Evaluation: A large cap company has huge market capitalization, at times, even greater than one billion dollars. Such companies grow slowly because they are already providing services to their target audience. Any additional product is like a smaller proportion of total revenue than the new product offering. A small cap company is not restricted with such limitations. If you're seeking high-growth companies, small caps are the place to look.

Advantages and Disadvantages of Small Cap Funds

The advantages of small cap fund are

As an investor, if you purchase the right kind of stocks, small cap mutual funds have historically shown to provide exponential growth return. Since these stocks are not traded by larger investors in the market, they are less likely to be scrutinized. Hence, if you have an eye for the stock market, there is a good chance of discovering some undervalued stocks among small-cap companies for small-cap funds.

The disadvantages of small cap funds are

The biggest disadvantage of small cap funds is the risk involved. Small cap funds are volatile instruments as compared to Equity Linked Savings Scheme or large cap equity-oriented funds. Thus, a small cap fund is not suited for a young or novice investors. Such a fund is ideal for a seasoned investor who has a high capacity for risk. Also, there are no dividends offered to shareholders as all profits, sales proceeds and dividends are reinvested within the company.

Top 10 Best Small Cap Mutual Funds 2019

Click here to know about The top 10 best small cap mutual funds to invest in FY 2019-2020

FAQs on Best Small Cap Funds

Are small caps a good investment?

As an investment, yes. Such funds have a very high potential for growth and can provide excellent returns, but come with a high risk.

How is SBI Small Cap Fund?

It is a very good fund and has a proven track record. If a person has a high risk appetite, then one should consider this fund for investments.

Is HDFC Small Cap Fund good?

Yes, it is a good small cap fund for investment.

Is it the best time to invest in mutual funds?

Yes, investment in mutual funds is an excellent option. If you have extra money lying around, a mutual fund is a suitable investment.

Is Reliance Small Cap Fund Tax Saver?

No, Reliance Small Cap Fund is not a tax saver scheme.

What is the difference between small cap and large cap?

Small cap are funds which invest in companies with a small market capitalization, while large cap are funds which invest in companies with large market capitalization.