Nifty Small Cap Fund

Small cap funds are those funds where the money of the investors is invested in those companies that have a smaller market capitalisation. These mutual funds are ranked below 250 in terms of market capitalization. These mutual funds carry great potential for giving high returns. The scope for growth in these companies are immense. The probabilities are high that when the company will grow in the long run, the share price performance will also increase. Based upon the preference of the investor they can choose between stock oriented and debt oriented balanced mutual funds.

Lower cost

Lower cost

Higher returns

Higher returns

Greater growth potential

Greater growth potential

Offers diversification

Offers diversification

What are Nifty Small Cap Funds?

Small-cap mutual funds allocate investors' funds into companies with smaller market capitalisations. Specifically, these funds target firms with relatively modest market values.

The Nifty Small Cap 250 Index consists of the bottom 250 companies listed within the Nifty 500 Index Funds, ranging from positions 251 to 500 on the index. This index can be further segmented into two distinct categories:

  1. Nifty Small Cap 50: Comprising the top 50 companies from the Nifty Small Cap 250.
  2. Nifty Small Cap 100: Encompassing not only the entities from the Nifty Small Cap 50 but also additional stocks selected from the remaining Nifty 250.
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Benefits of Investing in Small Cap Funds

Adding small Cap Funds to your investment mix can offer higher returns. Let’s see how!

  • Diversification

    These funds invest in small cap companies. The fund manager allocates the funds of the retail investors in such a way that the risk of the investor is minimized and the return is maximized.

  • Good for risk takers

    For the investors with a high risk appetite, focused mutual funds are a great investment option. Since the chances of getting higher return are higher, the chance for risk or loss also increases accordingly.

  • Immense growth potential

    Investing in small cap funds offers great room for growth. Since these companies are small, if the company performs well with strong fundamentals the chances are high that the price of these stocks will definitely grow in future.

Who should invest in Nifty Small Cap Mutual Funds?

Now we will look at the typical traits which an investor must have for investing in a Nifty Small Cap fund.

  • Investors with a High Appetite for Risk

    As an investor, if you have an appetite for risk and do not worry about returns all the time, then the Nifty Small Cap fund is highly suitable for you. As the market capitalisation of these companies is low, it gets significantly affected by market volatility. So, if short-term returns are not your thing, then invest in this fund.

  • Investors with Long-Term Goals

    If you do not have any immediate financial goals to achieve with your investment in Nifty small cap funds, then invest here. These funds are highly suitable for individuals seeking to achieve long-term goals and have the patience to wait long enough to get their return expectations met.

  • Investors Seeking High Returns and Liquidity

    The Nifty Small Cap is good if you are highly ambitious. But if you want decent returns with some stability, you can invest in other options via INDmoney. Also, investors who invest in Nifty Small Cap funds should be okay with liquidity risk, suggesting the fund may not convert its investments into cash quickly. 

Points to consider before investing in Nifty Small Cap Funds

Here are the points you should consider while investing in Nifty Small Cap index funds.

  • Risk Appetite

    You can invest in Nifty Small Cap funds if you can bear a high amount of risk. So judge how much risk you want to take.

  • Financial Goals

    High ambitions and desire for returns go well with investing in Nifty Small Cap funds. You will have a good chance of winning high returns over the long term.

  • Investment Horizon

    You should invest in Nifty Small Cap if you want to invest for the long term. For short-term investment, you can check out other options at INDmoney.

  • Past Performance

    Evaluate how the fund has performed previously. Use it as a yardstick to compare it with other competitors.

  • Portfolio

    Analyse the portfolio of the fund carefully to check if it aligns with your goals. It will help you to predict its performance in the future.

  • Fund Manager

    The qualifications of your fund manager will tell you if the fund is in the right hands. For example, you can see what returns the manager has generated in the past. Study the fund manager’s track record to make a decision.

Limitations of Investing in Small Cap Mutual Funds

Even with their advantages, small Cap Mutual Funds come with certain limitations to consider:

  • Higher risk

    Market volatility can have a huge effect on Nifty Small Cap funds. A down trending market can force the stock prices of small cap companies to drop drastically. As these are new and emerging companies, there is always a chance of something going wrong with them.

  • Less transparency

    Many times manipulation can be observed in small cap companies because of less transparency. This can sometimes result in high volatility in the stock.

  • Liquidity risk

    Liquidity refers to the ease with which an asset can be converted into cash. Small Cap stocks often face a liquidity risk. You may have to bear this risk if you invest in Nifty Small Cap funds.

How to Start Investing in Nifty Smallcap Funds with INDmoney

After you have understood what Nifty Smallcap Funds are, it is time for you to start your investment process with INDmoney. Below are some simple steps to follow to start your mutual fund's investment journey with us.

  • Step 1

    Download the INDmoney app and create your free investment account by completing your KYC ( Know Your Customer).

  • Step 2

    Once your Free investment account is ready, you can either search for a Nifty Smallcap Fund or go to the mutual fund section and tap on Nifty Smallcap Funds inside Index Funds Catalog.

  • Step 3

    Choose a Nifty Smallcap Fund by looking at aspects like past returns, volatility, downside capture ratio, AUM, Expense ratios and underlying stocks and sectors.

  • Step 4

    You can choose to set up SIP in Nifty Smallcap Funds or even invest as lumpSum. Once you are on the individual Nifty Smallcap Fund page click from the bottom “One-time” for lump sum investment or “SIP” for systematic investment plan. 

  • Step 5

    Choose the amount that you want to invest as SIP or LumpSum. 

  • Step 6

    Set up payments. If you choose to set up SIP in Nifty Smallcap Funds, you can do a free automatic pay set up via bank mandate or UPI. If you choose to invest in lumpsum (one-time) then you can pay via UPI, netbanking, NEFT or RTGS.

Should you invest in Nifty Small Cap Funds?

If you are willing to take risks and invest for a long time, then you can consider investing in Nifty Small Cap funds. You will have to take a high risk to win a high return. In the long term, they can beat large cap mutual funds. The diversification of the portfolio and the growth potential make it an attractive investment option. You can visit the INDmoney website to choose the right scheme for yourself.

Frequently Asked Questions

The following are the three types of Nifty Midcap Indexes:

  • Nifty Midcap 50 Index
  • Nifty Midcap 100 Index
  • Nifty Midcap 150 Index

Yes, the Nifty Midcap index fund is a high-risk investment option than large-cap funds. These funds invest in mid-size companies that have the potential to become market leaders. However, investing in funds for the long term reduces the risk level significantly. 

Yes, Nifty Midcap index funds are good for long-term investment as the mid-size companies have high growth potential. 

The Nifty Midcap index funds typically offer annualised returns as high as 48%. However, you must compare the return rate of various funds before investing.

The following are some of the top-performing Nifty Midcap index funds in India:

  • Motilal Oswal Nifty Midcap 150 Index Fund Direct Growth
  • Aditya Birla Sun Life Nifty Midcap 150 Index Fund Direct Growth
  • Nippon India Nifty Midcap 150 Index Fund Direct Growth
  • SBI Nifty Midcap 150 Index Fund Direct Growth
  • ICICI Prudential Nifty Midcap 150 Index Fund Direct Growth

These index funds usually prioritise investing in sectors that focus on domestic growth. It enables investors to take advantage of India’s growing economy without depending much on the global market.

The returns of index funds are subject to tracking errors, which refer to deviations between the fund’s performance and the benchmark index’s performance. However, the best Nifty Midcap index funds have a low tracking error, allowing you to track the funds before investing.

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