Small-cap funds have are high returns funds. In this article, there are 5 best small-cap funds for 2018. As with any high-returns fund, the risk is high too. But if you invest for the long-term – at least 6 years, these funds can offer exceptional returns.

Investing in small-cap funds for a period less than that is too risky. However, each person’s financial status is different. Based on that, you can wary your investment amount and risk-taking ability.

Best Small Cap Funds to Invest in 2018

L&T Emerging Businesses Fund

The returns (both 1Y and 3Y) of this fund are comparatively higher than others in the category.

The expense ratio is comparable to other funds in this category. The fund is less than 4 years old and the risk is lower as compared to the benchmark.

L&T Emerging Businesses Fund Facts

Risk Level HIGH
Minimum SIP Amount ₹500
1 Year Returns 60.06%
3 Year Returns 27.63%

HDFC Small Cap Fund

Risks for this fund is lower as compared to the benchmark. However, the 1Y returns are also lower as compared to the benchmark.

The fund is going to complete 10 years, which holds it in good reputation. The expense ratio is comparable to other funds in this category.

HDFC Small Cap Fund Facts

Risk Level HIGH
Minimum SIP Amount ₹500
1 Year Returns 51.68%
3 Year Returns 21.3%

Reliance Small Cap Fund

This is one of the best performing funds this year and overall too. It has always enjoyed great popularity among investors.

It is about 7 years old and has earned a very good reputation for itself. The expense ratio is comparable to other funds in this category.

Reliance Small Cap Fund Details

Risk Level HIGH
Minimum SIP Amount ₹100
1 Year Returns 61.67%
3 Year Returns 25.88%

Small Cap Funds: Bonus List

If the above list of small-cap funds is not enough, you can have a look at the following top-rated small-cap funds too:

Sundaram SMILE Fund

Sundaram SMILE Fund is a 4 star rated small-cap fund on Groww. It has given a stellar return of 53.35% in the last 1 year and has also given a consistent 27.12% return over the last 5 years.

Launched in 2005, it is one of the oldest funds on this list and has a good and long track record.

Risk Level HIGH
Minimum SIP Amount ₹1000
1 Year Returns 53.55%
3 Year Returns 26.34%

IDBI Small Cap Fund

This fund is a 4 star rated small-cap fund on Groww. It is a brand new small-cap fund launched in 2017. It shows great potential to grow in the future.

Taxation on Small Cap Funds

Taxation on equity funds differs from taxation on equity funds in general and small-cap funds in particular. One point of difference is that long-term investment in equity funds is for a period greater than 1 year, unlike 3 years in debt funds.

Gains on small-cap equity funds held for a period greater than 12 months are known as Long Term Capital Gains (LTCG) which are totally tax- exempt.

If the funds are held for a period of fewer than 12 months, then such gains are taxed under the head ‘Short-term Capital Gain’ (STCG) at a flat rate of 15%.

What is a Small Cap Fund?

In small cap funds, a large portion of the investment is done in small-cap stocks i.e. in companies with small market capitalization- having a market cap of less than ₹ 500 crores.

Small-cap funds are highly risky and volatile investment instruments as compared to large and mid-cap fund category due to their exposure to high performing equities.

These funds have an objective of seeking capital appreciation through investment in high growth stocks.

Small-cap funds are suitable for investors who are

  1. willing to take a high amount of risk with their capital,
  2. have a longer time horizon for their investments and
  3. are looking for higher returns compared to blue-chip companies.

Also, it is advisable to invest through SIP route as you will be able to derive the benefits of rupee cost averaging, your investment will not be skewed towards one side in the economic cycle and you can invest a part of your income every month without feeling any financial burden.

Groww 30: Top funds in every mutual fund category. 

Happy investing!

Disclaimer: the views expressed here are those of the author. Mutual funds are subject to market risks. Please read the offer document before investing.