What is the Risk Profile of Small Cap Funds?


  • The risk is high but small cap fund have the potential to generate multi bagger returns.
  • Some funds like SBI Small Cap Fund are resilient enough to provide returns upto 17 % even during market lows.

Small cap funds invests in the stocks of those companies that are listed as companies below 250 according to their market capitalization. These companies are mostly startups, which show signs of growth in the future. One can obviously get lured by the exceptional returns that small cap mutual funds provide. But, there’s always an equal probability of no or even negative returns due to its lack of maturity and instability. Company specific risks, like labour issues, management problems or technology issues,  are higher with the stocks of small cap companies. That is why stocks of these companies are considered to be extremely volatile. By that, we mean, the risk profile of small cap funds is high risk.

Which Investors should Opt for these Investments?

Small Cap Funds are not meant for all kinds of investors. New retail investors should especially refrain from investing in small cap equity funds. Investors who have a long investment horizon and can have a high risk taking capacity can invest in a small-cap mutual fund. These investments require a certain amount of market knowledge and patience, which normally is not the case of new investors. Small cap investments are good only when the investment time period is more than seven years.

It is extremely important to understand the risks associated with any mutual fund before investing. You should not only evaluate the fund’s risk, but also assess your risk profile. This is why every fund manager and mutual fund advisor keep stressing on the fact to invest in schemes which is line with your risk profile.

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Recommended Small Cap Funds to Invest In!

Fund Name1 Year Return 3 Year Return 5 Year return   
Franklin India Smaller Companies Fund-20.46%-0.18%8.24%
Reliance Small Cap Fund-22.22%6.03%11.13%
SBI Small Cap Fund-14.10%10.45%17.09%
DSP Small Cap Fund -19.75%-1.56%9.98%
HDFC Small Cap Fund-18.63%7.08%10.49%

Note: All the data  that has been mentioned in this articleis sourced from Value Research as on Aug 23, 2019. The return data pertains to the Regular Plan.

How to Invest in Small Cap Mutual Funds?

In this day and age, everything happens online. Investment in small cap funds can also be done online through Wishfin, which lets you compare different schemes so that you can make the best choice for yourself. All you have to do is follow the below mentioned steps:

  • Got to www.wishfin.com
  • Click on “Mutual Funds” tab
  • Click on ‘Register/Login’
  • Registration Steps for New Investors
  • Mention your mobile number
  • Click on “Next”
  • Enter the One-time Password (OTP) received on your mobile number
  • Click on ‘Verify and Continue’
  • Enter your full name, email ID, the city you live in
  • Create a password meeting the desired requirements as laid down
  • Click on “Sign Up”

Login Steps

  • Mention your email or mobile number
  • Click on ‘Get OTP’ to receive the same
  • Enter OTP at the prescribed space
  • Click on ‘Login’
  • Go to ‘Explore Mutual Funds’
  • Go to ‘Equity’ and then on to ‘Small Cap Funds’
  • Click on ‘Invest’ below any of the sector funds shown above
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Disclaimer: Mutual Fund Investments are subject to market risks, read all scheme related documents carefully before investing.

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