Best Small Cap Funds

The short answer: for most people the best small cap exposure is the one you never buy separately. A flexi-cap fund or a broad market index fund already owns small caps, sized by a manager or by the market. A dedicated small cap fund is the third-best route, and only with a seven-year horizon and an SIP.

Which route into small caps is best?

What legally counts as a small cap fund?

SEBI fixes both halves of the definition. A small cap company is the 251st company onwards by full market capitalisation. A small cap fund must hold at least 65% of net assets in equity of those companies, and may hold up to 100%.

Read the second half again. The floor is 65%, not 100%. Up to 35% may sit in larger companies, debt or cash. That gap is the manager’s shock absorber, and it varies a lot between schemes. Two funds in the same category can behave very differently in a fall because of it.

The ranking list itself is refreshed periodically by AMFI, so a company can drift into or out of the small cap bucket without the fund doing anything.

What is the liquidity risk, stated plainly?

Small companies trade thinly. A fund that owns a meaningful slice of one cannot sell it quickly without moving the price down. That gap between the quoted price and the price you actually get is impact cost, and it grows exactly when you need it not to.

Now add redemptions. In a sharp fall, investors redeem. The fund must find cash. It sells what it can sell, which is the liquid part of the portfolio. The illiquid part stays. So the fund gets less liquid, not more, during the fall. The remaining unitholders inherit that.

This is the mechanism, and no fund escapes it. It is why a small cap fund with a large asset base is not obviously safer than a small one. Size helps with research and costs. It hurts with exits.

Check each scheme’s own liquidity and stress disclosures on the AMC website before you invest. We have not reproduced those numbers here because we could not verify a current set against a primary source.

Why NAV tells you nothing about which fund is better

This is the single most common misreading of the table below. A NAV of ₹12 is not cheap. A NAV of ₹328 is not expensive. NAV is simply the fund’s assets divided by its units, and a fund launched in 2010 will naturally show a higher NAV than one launched in 2025.

Buying the low-NAV fund because it “has more room to grow” is the equity equivalent of preferring a ₹10 share to a ₹1,000 share. Your return depends on the percentage the portfolio moves, not on the number printed beside it.

Use the table to confirm a scheme exists and to get its exact name for the direct plan. Use nothing else from it.

The verified universe of small cap direct plans

These are the open-ended small cap schemes with a direct growth plan present in AMFI’s scheme file, with NAV as of 28 August 2026. Only direct plans are shown. A regular plan embeds a distributor commission that compounds against you for the whole holding period.

That is 35 distinct schemes, as of 28 August 2026, from AMFI’s published NAV file. AMFI’s file carries two records under the Sundaram Small Cap Fund name; one is shown.

How should I choose between them?

Not on last year’s return. A small cap fund that led the table for a year usually did so by holding the riskiest end of the category, and that positioning reverses. Judge on three things instead.

How much of the portfolio is actually small cap?

The floor is 65%. Some funds run near 90%, some near 70%. The lower the small cap weight, the milder the fall and the milder the rally. Neither is better. But you should know which one you own.

How concentrated is it?

Count the holdings and check the weight of the top ten. A fund holding 40 names is a bet on a manager. A fund holding 90 names is closer to the index, and you may be paying an active fee for it.

How long has the same manager run it?

A track record belongs to a person, not to a scheme code. If the manager changed two years ago, the ten-year number on the factsheet is somebody else’s work.

How are gains from a small cap fund taxed?

They are equity funds, so equity capital gains rules apply. The holding period and the rates are set out on our page on mutual fund taxation. Do not let the tax tail wag the dog here. A seven-year horizon puts you well past any short-term threshold anyway.

If you are building the core first, start with index funds and large cap funds. Add mid cap funds before small caps, not after. And if you are setting up the monthly instalment, our page on SIP plans covers the mechanics.