Top 6 Best Small Cap Mutual Funds to Invest in 2018

Small Cap mutual funds are preferred by the investors who are the risk taker and aggressive for high return. The small cap and mid cap mutual funds invest in the small cap and mid cap stocks. These funds give you high return but there are more risks as the companies are small in size and aiming for high growth. If you are interested to include small cap funds in your portfolio, here is the list of top 6 best small cap mutual funds to invest in 2018.
If you are interested to grow your wealth by investing in a Mutual fund SIP I would recommend you to read  Top 10 Mutual Funds for SIP to invest now.

What is Small Cap Fund?

The mutual fund which invests in small cap stocks is called as small cap fund. The small cap companies are having lower market capitalization. The market capitalization is the market value of its outstanding shares. Typically, the small cap companies have the market capitalization of less than 500 Cr. The small companies have chances of growing fast and so the share prices. As the share price of a small company increases, the market capitalization increases.

The risk of investing in a small company is also very high compared to the big companies or large cap stocks. That’s why the aggressive investors who can take a substantial risk for their capital can invest their money in small cap funds. Also, the investors should be invested for a long term to increase the investment significantly.

Do you want an investment for short term? Here is the Best Liquid Fund for Short Term investment.

Selection Criteria:

The following criteria, I have used to screen the best small cap mutual funds.

  1. Asset under Management (AUM) size is to be more than 500 cr as higher the AUM means it has gained the investors’ confidence to put the money in those funds.
  2. Presence of at least 5 years in the market. A 5 years presence in the market signifies that it is time-tested across various market situations.
  3. Past annual return of more than 18% for 3 years. It means the fund is present in the market with a stellar performance.
  4. At least 3-star rating from valueresearchonline and Morningstar. A higher rating indicates that the funds can perform well with respect to the others.
  5. I have taken the data for regular plans for easy comparison. As you are already aware, you can invest in the direct plan of these funds for the better return than regular funds.
Here is the Best Small Cap Mutual Funds to invest in 2018

1. L&T Emerging Business Fund:

L&T Emerging Business Fund is one of the best funds in Small Cap category. It has invested the money in high performing small cap stocks such as HEG, Lakshmi Machine Works, The Ramco Cements, Future Supply Chain Solutions etc. The fund has nearly 80 stocks in its portfolio. Out of these 80 stocks, top 10 stocks have 22.64% value of total AUM.

The fund was launched in May 2014 and it is able to grow its asset size to Rs 4000 Crore in 4 years’ time. The fund has given an excellent return of 26% in 3 years. The benchmark index of this fund is S&P BSE Small Cap TRI and the fund has continuously beaten the benchmark in terms of return.

L&T Emerging Business Fund

I have shortlisted this fund even if it has not completed 5 years because of its performance, risk-reward return, and increment of AUM size in a short period of time. Moreover, it has completed almost 4 years with the great return to the investors.

The fund has a very low expense ratio of 2.08%. It has some exposure in debt products also and maintains a healthy cash balance. The fund manager is experienced and he has a good track record of managing good performing funds.

2. SBI Smallcap Fund:

SBI Smallcap fund has been renamed from SBI SMall and Midcap Fund after the SEBI regulation. The SBI Small and MidCap Fund has been launched in 2009 and since then it has grown significantly. It also generated a whopping 22% return since its launch to the investors. The fund has an expense ratio of 2.32 %. The total Asset size of the fund is Rs 771 Cr as on 31st March. 2018.

You can invest lump sum as well as through  SIP in this fund.

The fund has total 29 numbers of stocks in it’s holding. The top 10 stocks comprise nearly 47% of the total holding. Some of the stocks are Westlife Development, Kirloskar Oil Engine, LT Foods, Techno electric & Engg etc.

The benchmark of this fund is S&P BSE Small Cap TRI. The trailing return shows that it is continuously front-runner in its category. The fund manager has vast experience across different AMCs and managing different type funds.

3. Reliance Small Cap Fund:

Reliance small cap fund has the objective of generating long-term capital appreciation by investing in equity related instruments of small cap companies. The fund has generated a massive return over the years. It has generated 37% return over the last five years 22% since launch in 2010 for the investors.

Again this fund also invests in the small cap stocks. Some of the stocks are Navin Fluorine Corporation, Deepak Nitrile, Cyient, Zydus Wellness etc. The top 10 stocks comprise 20% holding of the AMC. The total asset size of the fund is close to Rs 6545 Cr as on 31st March 2018.

The expense ratio is less for the fund which is 2%. The fund has a diversified portfolio and exposure to small cap companies continuously 65 to 70%.

S&P BSE small cap 100 is the benchmark of this fund and the fund has continuously beaten the benchmark in terms of return to the investors.

The fund has an alpha ratio of 13.18 and beta ratio of 1.05. (Recommended Read How to judge mutual fund performance).

Both the fund managers of this fund has a good amount of experience and they have worked with other fund houses as well.

4. HDFC Small Cap Fund:

HDFC small cap fund has been started to provide long-term capital appreciation by investing predominantly in small cap and mid cap companies.

The fund has total 64 numbers of stocks in its holdings. The 25% holding of the fund is in top 10 stocks which are Sonata Software, Redington India, Carborundum Universal, SKF India, Chambal Fertilisers etc.

The fund has set the benchmark as Nifty Small Cap 100 TRI and it has continuously beaten the benchmark. The fund has generated 25% return in last 5 years.

It has an alpha ratio of 11.87 and beta ratio of 0.99 which indicate lower volatility than the benchmark. The fund has a total asset of Rs 2968 Cr as on 31st March 2018 and a low expense ratio of 2.36%. The HDFC small cap fund has very good fund managers who have also managed the high performing funds such as HDFC balanced fund, HDFC mid cap opportunities fund etc.

Also Read: Five Best Tax Saving Mutual Funds 

5. DSP Blackrock Small Cap Fund:

DSP BlackRock Small Cap fund has the same objective as other small cap funds which is to create long-term capital appreciation by investing in small cap companies. It is one of the high performing funds in this category. The fund has generated a whopping 34% return over the last 5 years.

The benchmark is S&P BSE Small cap TRI and the fund has continuously beaten the benchmark by a great margin. Some of the stocks in the holding of the fund are Finolex cables, SRF, Aarti Industries, APL Apollo tubes, Atul etc.

You can invest lump sum as well as through SIP in this fund. The minimum investment is Rs 1000 for both the cases. The fund has an alpha ratio of 8.84 and beta ratio of 0.99. The expense ratio of the fund is 2.45%

It has large numbers (89 Nos.) of stocks in its portfolio which is difficult to manage in our view.

Best Small Cap Mutual funds to invest in 2018

6. Franklin India Smaller Companies:

Franklin India Smaller Companies is a small cap fund which is investing in mid and small cap companies. The fund invests a minimum of 75% of its assets in smaller companies.

The fund is a continuous performer in the small cap segment. It has generated a return of over 30% in 5 years period. The expense ratio for a regular plan of the fund is 2.49%. The benchmark index of this fund is also Nifty free float midcap 100.

If you have invested Rs 1000 per month for a period of 5 years you get Rs Rs 1,10,000 for an investment of Rs 60,000.

It has the highest asset (3.9%) allocated in the FInolex cables and allocation of the asset is well diversified across the sectors.

The minimum SIP amount is Rs 500 and exit load is 1% for redemption within 1 year. This fund has secured an asset size of approx. Rs 7000 Cr.


All the above small cap mutual funds have generated a great return over the years. But the return is not the only factor what you will take care before investing in a small cap fund. You should not choose a fund because it is performing well. The investment is to be linked to a financial goal. You should assess also your risk appetite before investing. When you feel you can take the risk and invest for a longer term, decide to invest in these best small cap mutual funds.

If you are thinking of buying any mutual fund consider the direct plan of the scheme. Change the regular scheme to direct one if you have already bought.

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