Best Small Capital Mutual Fund to Invest in 2021

Charlotte Miller

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Small Capital Mutual Fund is an equity scheme that majorly invests in Small cap stock. In other words, when you invest in small cap MF then you are actually investing in small-sized companies which have higher risk-return profile. Now the question arises in our mind what is small cap companies, and is it really worth taking the risk? 

According to SEBI, 251st onwards, companies based on market capitalization is called small cap stocks. These have a high potential for returns, high risk and less liquidity. Seeing all the risk factors, can you still go forward to invest in it? Yes, indeed, if you invest wisely and smartly, you can get good rewards. Here we have mentioned the top Small Cap Growth Direct Plans that will help you decide where to invest safely to gain high returns. 

click here – QMS Full Form: Of  What Is The Full Form Of QMS?

Why and When to Invest in Small Capital Mutual Funds? 

It is universal that higher returns come with higher risk. Investing wisely in Mutual Funds is an important way for growing your money. It is not only returns that matters but there are many parameters that come into play like Expense Ratio, risk factors and more. For small cap investment, AUM (Assets under management) should be more than ₹ 5000 Cr and less than ₹50000 Cr. If you have the appetite for high risk, then this is the right section for investment. There are increasing numbers of investors this year who are interested in small cap investment. There are many benefits for spending on small cap stocks like:

  • It has better growth prospects and better returns. 
  • It has greater potential to gain market as small cap companies often introduce new technology, products or services.
  • Small Cap MFs grow faster than large and midcap stocks even when there is a phase of economic recoveries. 

click here – FTP Full Form: What Is The Full Form Of FTP?

Top Small Cap Growth Direct Plans 2021

  • Axis Small Cap Fund

Axis is one of the best investing platforms when it comes to investing in small cap MF. It identifies long term opportunities and high conviction small capital companies for less risky investment. While picking the companies to choose, they look for stability, quality and scalability during stock selection and more. High preference is given to companies with sound balance sheet, strong corporate governance, the capability to sustain with good ‘Return on Equity’ and ‘Return on Capital Employed’. And most importantly, its ability to withstand unseen event shocks. You can start investing with minimum SIP of ₹500 or minimum lumpsum of ₹5000. It gives high returns of 10.1% in 3 years and has the least expense ratio of 0.3%. 

1 year Returns- 20.5%

3 years Returns – 10.1% 

5 years Returns – 14.8%

Expense Ratio- 0.3% 

AUM-₹ 3,366 Cr

  • SBI Small Cap Fund

SBI Small Cap growth fund is also an excellent plan to invest for. They invest in mid, small and tiny companies that are Industrial, Basic Materials and more. Its biggest holding is in JK cements and invests in small and tiny cap companies. You can begin to invest in it with minimum SIP of ₹ 500 but lumpsum amount is restricted. You can buy this Small Cap growth direct plan this year; you can go to Upstox and browse. While finally purchasing, use Upstox coupon code and get exciting discounts. Read all the document and analyze the risk before investing. 

1 year Returns- 28.9%

3 years Returns – 3.8%

5 years Returns – 16.8%

Expense Ratio- 0.9%

AUM-₹ 6, 202 Cr

  • Kotak Small Cap Growth Direct Plan

You can start investing minimum SPI of ₹1000 and minimum lumpsum of ₹5000. Kotak invests in multi-cap stocks and gives out good returns. It has AUM lesser than ₹500Cr with a lesser Expense ratio, so you can choose to invest in this. 

1 year returns- 32.0%

3 years returns – 5.4%

5 years returns – 13.6%

Expense Ratio- 0.7%

AUM-₹ 2,154 Cr

  • Nippon India Small Cap Growth Direct Plan 

You can start the plan with a minimum SIP of ₹ 100 and a minimum lumpsum ₹5000. It gives good returns in 1 year period with Expense Ratio of 0.9%. 

1 year returns- 25.1%

3 years returns- 0.9%

5 years returns- 12.5%

Expense Ratio- 1.16% (most)

AUM-₹ 10,398 Cr (most)

There are few more Small Cap Direct Plans as follows:

  • ICICI Prudential Small Cap 
  • HDFC Small Cap 
  • DSP Small Cap 
  • Quant Small Cap 
  • Franklin Smaller Companies Fund

Consider the Risk Factor Parameters

The Risk factors to consider while investing in small cap companies – 

  1. Alpha- This indicates the performance of the investment risk. More the Alpha number better is its performance form the index and gives lesser risk. 
  2. Beta – It shows the fund volatility, and the lesser the volatility, the better are the returns. E.g. Axis has 0.78 and SBI has 0.87, which is calculated out of 1. 
  3. R2- It indicates index correlation. For any mutual funds, R2 should be more than 80. In all four plans mentioned above, R2 is more than 80.  E.g. Nippon has 98.15, and Kotak has 96.60. 
  4. Sharp ratio – This aspect tells us how much is a risk. If we consider zero risk funds at 1, we should invest in a plan which is closest to 1.  E.g. Axis has a sharp ratio of 0.34, and SBI has 0.13.
  5. Standard Deviation – It indicates that the fund is less volatile and shows the deviation from the current return. Lesser the value better is its risk condition. 


Investing in Mutual Funds gives high returns in shorter time duration, but no doubt it has the risk factor attached to it. Here you need to wisely analyze the market condition and risk factor before investment. When you see that your direct growth plan has higher alpha and sharp ratio closest to 1, you can consider it for investing. Go through the top plans we have suggested and choose after comparing them. Happy investing! Happy Growing!