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What is a Small Cap Mutual Fund?

Small Cap equity funds invest in India's smallest companies. These companies are not among the top 250 and are generally unheard of in our daily lives. While small firms might provide tremendous profits, they are extremely volatile and can result in short to medium-term losses.

Benefits of Small Cap Funds

  • Benefit from investing early in firms that have the potential to be top enterprises in the future.
  • High-risk exposure because of a lack of financial ability to endure difficult market conditions.
  • Ideal for highly bold investors with a 7-year or longer investment period.

Why choose RKFS for Mutual Funds

  • 0% commission (buy and sell for free)
  • Paperless registration.
  • Invest in demat form
  • Invest in physical form
  • Same demat account used for other investments.
  • Apply for SGB from the same demat account.

Small Cap Funds: How Do They Work?

Small Cap Equity Funds must invest at least 65% of their assets in equity stocks of small-cap firms, according to current SEBI criteria. Small-Cap firms are all listed companies with a market capitalization of less than the 250 largest corporations listed on Indian stock exchanges.

Small Cap Funds can deliver significantly high returns to investors because they are predominantly invested in relatively smaller companies. These funds, however, are subject to high volatility because the performance of Small Cap companies can be substantially impacted by shifting market conditions. To mitigate the possible impact of this volatility, investors can deploy a modest portion of their portfolio to Small Cap Equity Funds.

Small Cap Funds: How Do They Work?

Who Should Consider Investing in Small Cap Funds?

Investors Seeking Long-Term Capital Growth

Small Cap Funds can be highly volatile in the short term. Thus, investors should only consider investing in these schemes if they plan to stay invested for at least seven years. Small Cap Funds have an unrivalled ability to provide high returns over long periods. However, due to the possibility of extreme volatility in returns, investors should restrict their exposure to these Equity Funds even over the long term.

High-Risk Investors

Tiny Cap Funds mainly invest in small publicly traded firms with the potential for rapid growth. As a result, the potential for these techniques to generate huge profits is unrivalled. However, this large exposure to smaller companies poses a significant risk because shifting market conditions can greatly impact their performance. Small Cap Funds are suited only for investors with a high-risk appetite due to their increased risk - potentially high return characteristics.

Taxation on Small Cap Funds:

Large Cap funds get similar tax treatment as other equity investments. Capital gains on the holding period of under a year are under short-term capital gains (STCG). These are taxed as 15% tax.
Gains made on investments held for over a year are labelled as long-term capital gains (LTCG). As per the current tax rate, there is no tax on LTCG till 1 lakh in a financial year. The amount surpassing this cutoff is taxed at 10% without indexation advantage.

How to invest in Small Cap Funds?

It is very easy to invest in Large Cap mutual funds with RKFS, here are few simple steps:

  • Register open free*demat account on our website.
  • You will receive your credentials from us on your registered mail id (in case of demat).
  • Login https://rkfs.investwell.app/app/#/login using your credentials shared from sanjhipoonji@rkfml.com
  • Click on menu, select new investment, and choose the amount and mode of investment.
  • In case of SIP the system will ask to create mandate .
  • Create mandate (select NACH in case of online authentication and physical if you don’t have net banking (download the form , write your name add signatures and upload it)
  • Once the mandate is authenticated and active , you are all set to start your SIP investment in mutual funds.
How to invest in Small Cap Funds?


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FAQs Small Cap Mutual Fund

Because Small Cap Mutual Funds are equity funds, which invest in company stocks, you must commit to investing for at least five years.

Small Cap Funds have delivered 0.02% p.a. returns on average during the last year. Their annualized returns over three and five years are 30.03% and 12.04%, respectively.

Small Cap Mutual Funds invest in equities. Therefore, they might be volatile in the short term. However, the danger decreases significantly over time.

Small Cap Mutual Funds are required by law to invest at least 65% of their assets in stocks of firms ranked 251 and above in India based on market capitalization. Most funds in the category also invest in midcaps, with only a tiny percentage in large caps. Regardless of these allocations, these funds are always small-cap heavy and bear the risk-reward profile of the small-cap investment.

Small Cap Funds provide exposure to small businesses that have the potential to grow into mid and large-sized companies in the future. On the other hand, small caps can be exceedingly volatile in the short run, especially if market conditions are unfavourable. However, the returns can outperform the market if you stay invested long enough.

Disclaimer: Fund Names Are as Per the Data Provided by Investwell Inc, Which is Our Service Provider for Sanjhi Poonji Mutual Fund App. Kindly Note That the Top Fund Are Subject to Market Changes. For More Updations Kindly Register/login on Sanjhi Poonji App or Website Login.

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