Top Small Cap Mutual Funds for High Growth in 2025
Looking for high-growth mutual funds in 2025? Small cap mutual funds might be your best bet. These funds invest in young, fast-growing companies. While they carry higher risk, they can deliver massive returns over time if you’re able to handle the ups and downs.
What Are Small Cap Mutual Funds?
Small cap mutual funds invest in companies ranked below the top 250 in the stock market. These firms have smaller market capitalizations but strong growth potential.
They usually have:
- To begin with, lower stock prices, making them more accessible to retail investors.
- Moreover, high growth capacity, as these companies are in their early expansion stages.
- In addition, less media and analyst attention, which means they’re often undervalued or overlooked.
- As a result, greater price swings, leading to higher volatility but also higher return potential.
That’s why these funds carry more risk but also more reward. Check out the risks of Mutual Funds
Why Invest in Small Cap Funds in 2025?
1. India’s Economy Is Growing Fast
In 2025, India’s economy is expanding rapidly. This helps smaller companies grow faster. As a result, small cap funds are likely to benefit.
2. Huge Growth Potential
For instance, many small companies are hidden gems. Over time, they may turn into tomorrow’s giants. With the right expertise, smart fund managers can spot them early and as a result, deliver strong returns to investors.
3. Strong Past Returns
In bull markets, small cap funds often outperform others. They have delivered higher returns than mid or large cap funds in recent years.
4. Government Support
For example, government initiatives like ‘Make in India’ and MSME support provide small businesses with the necessary boost to expand. As a result, these policies significantly fuel the growth of small cap companies.
Best-Performing Small Cap Mutual Funds
If you’re aiming for high growth and have the risk appetite to match, Small Cap Mutual Funds could be your ideal choice. These funds invest in emerging businesses with strong potential, making them suitable for long-term investors who can weather market volatility. Below is a list of the best-performing small cap mutual funds, ranked by their 3-year returns as of 17 June 2025.
| Fund Name | Plan Type | 3yr | SI |
| Bandhan Small Cap Fund | Growth | 36.42% | 33.24% |
| Bank of India Small Cap Fund | Growth | 27.85% | 26.68% |
| Edelweiss Small Cap Fund | Growth | 27.58% | 26.1% |
| Motilal Oswal Nifty Smallcap 250 Index Fund | Growth | 29.15% | 25.47% |
| Invesco India Small Cap Fund | Growth | 32.43% | 24.04% |
| Canara Robeco Small Cap Fund | Growth | 22.53% | 23.46% |
| Tata Small Cap Fund | Growth | 28.21% | 23.41% |
| Axis Small Cap Fund | Growth | 25.06% | 22.69% |
| ITI Small Cap Fund | Growth | 33.55% | 21.68% |
Risks to Keep in Mind
Small cap funds are not for everyone. Here’s why:
- Volatility: Prices rise and fall quickly.
- Liquidity Risk: It may be hard to sell in tough markets.
- Fund Manager Skill Matters: A good fund manager can spot winners early. A bad one may miss them.
- Longer Recovery Time: These funds can take years to recover after a fall.
Who Should Invest?
Small cap mutual funds are great for:
- Aggressive investors looking for high growth
- Young investors with time on their side
- Long-term goals like retirement or wealth building (7+ years)
- SIP investors who want to average out market ups and downs
- Diversified portfolios that mix large, mid, and small caps
Final Thoughts
Small cap mutual funds are bold and exciting. They can turn small investments into big wealth but only if you stay invested long enough and ride out the bumps. In 2025, India’s booming economy is creating the perfect environment for small caps to thrive.
If you’re ready to take some risk for big rewards, these funds are worth a serious look.
Tip: Always align your investment with your goals and risk tolerance. Talk to a SEBI-registered advisor if you’re unsure.
At Nemi Wealth, we help you pick the right fund based on your profile. Start your journey today
FAQs
Are small cap mutual funds suitable for first-time investors?
Small cap funds are more suited for experienced or aggressive investors due to their high volatility. First-time investors can start with SIPs to manage risks better or consider large/mid-cap funds first.
What is the ideal investment horizon for small cap funds?
To truly benefit from small cap funds, you should plan to invest for at least 7 years. Over the short term, these funds may experience sharp ups and downs. Nevertheless, their long-term growth potential can make the wait worthwhile.
How risky are small cap mutual funds compared to other types?
Compared to large and mid cap funds, small cap mutual funds carry higher risk. This is because they often face sharp price movements and lower liquidity. Even so, they also offer greater growth potential, especially in a growing economy like India’s.
How do I choose the best small cap mutual fund?
First and foremost, look for consistency in performance over the past 5+ years. In addition, evaluate the fund manager’s experience, expense ratio, and how well-diversified the portfolio is.
Can I reduce the risk while investing in small cap funds?
Yes, absolutely. One effective strategy is to invest via SIPs, which help average out the cost over time. Moreover, you can reduce overall portfolio risk by diversifying mixing small cap funds with large and mid cap options.
