Top Small Cap Funds to Watch In 2025
As the name suggests small-cap funds invest in small-cap companies with market capitalisation of less than Rs.5000 crores. These lie beyond the top 250 companies and are not very well known in the market. A few of the small-cap companies include Multi Commodity Exchange of India, Timken India, Crompton Greaves Consumer Electricals, Brigade Enterprise etc.
Some of these funds, like Bandhan small-cap funds, have even generated alpha returns surpassing the benchmark return over the past three years. Although they do carry higher risk, their consistent track records and market support can become irrefutable options for those seeking higher returns in a shorter time.
Why Should You Consider Small Cap Funds?
In spite of their high-risk nature, investing in small caps can benefit you in several ways :
1. Strong Growth Potential: The aggressive small-cap companies with their expansion strategies offer significant opportunities for the growth of your portfolio.
2. Outperforming other funds: If you find your portfolio of large and mid-cap funds is not generating the expected returns, the inclusion of small-cap funds like Bandhan small-cap funds. This small addition may tilt the balance of your portfolio towards favourable returns.
3. Excellent Options for Long-term Investors: Small-cap funds are extremely sensitive to the ups and downs of the market. In a volatile situation, these funds are most impacted. Hence, if you are keen on acquiring a high profit from small caps, it is prudent to keep a time horizon of eight to ten years, to generate sufficient returns.
4. Investment Route: There are two ways to invest these funds. One is through SIP (Systematic Investment Plan) and the other by allocating a lump sum one time. In SIP you can allocate funds at regular intervals like monthly, quarterly etc. further reducing the risk of an unstable market. Moreover, the amount of investment can also be as low as Rs.100.
5. Undervalued Opportunities: These stocks often are undervalued due to their insignificant presence in the industry compared to their larger counterparts. Hence, it gives you futuristic opportunities to take advantage of their growth and gain in the long run.
Is it Prudent To Look At Small Cap Funds in 2025?
It is believed by some fund managers that over a 10-15-year time period, Small-cap funds can compound substantially. If you compare Nifty’s 30-year return which is 11-12%, with the small-cap index return of 17% over 20 years, you can see the return is quite significant. Hence small cap funds can be promising investments amidst a bullish market.
Over the past two decades, it has been noticed that small-cap funds cannot be underestimated. They have demonstrated an impressive internal rate of return and even outperformed some of the active funds in India. They have become a consistent tool of wealth creation over 4 to 5 years. If entered into the market at a strategic and favourable time, the gains can be extremely favourable for any investor over a 5-year time period.
Top Small Cap Funds To Watch in 2025
As per data available on the AMFI website, 13 small-cap funds have delivered alpha returns for the past three years, that is returns over and above the benchmark post-risk adjustment.
Bandhan Small Cap Fund had been the forerunner in the list.
The top 5 Funds based on their past performances the leading small-cap funds to monitor in 2025 are:
Fund Name | AUM in Crs. (as of 26th Jan 2025) | 1 Yr Return (%) | 3 Yr. Return(%) |
9691 | 26.4 | 27.1 | |
ITI Small Cap Fund | 2474.15 | 19.2 | 24.37 |
Invesco India Small Cap | 6298 | 23.7 | 24.34 |
61973 | 14.4 | 24.35 | |
Quant Small Cap Fund | 26670 | 8.2 | 23.68 |
Indeed, historical records cannot guarantee future forecasts of returns, but definitely, you can consider these funds in 2025. You need to monitor and track these funds for strategic market entry and diversification of portfolios.
Conclusion
Small-cap funds like Bandhan Small Cap Fund can be an excellent choice for investors seeking to take advantage of market dynamicity. The ability of small-cap stocks to adapt to fast-moving trends and changing market conditions makes them a compelling choice for a flexible portfolio. However, risk assessment is the key to incorporating these funds in your investment options, to acquire the best returns even if you maintain a long-term perspective. If you feel baffled or hesitant about taking a call, you can take the help of a professional advisor to suggest and monitor your portfolio to maximise your returns in 2025.
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