What counts as small cap
SEBI ranks listed companies by full market value. Companies ranked 251st and below are small caps; AMFI publishes the list every six months. A small cap fund must keep at least 65% in them.
Why they swing more
Small companies can grow quickly, but they are also more fragile: fewer products, thinner management, and their shares trade less. In strong markets small cap funds have often led; in falls they have often dropped 40–50% or more from their peak before recovering — and recovery can take years.
Liquidity matters
When many investors exit together, a fund holding thinly traded shares may struggle to sell without pushing prices down. Since 2024, fund houses publish monthly stress tests for small and mid cap funds showing roughly how many days it would take to sell a quarter or half of the portfolio. Compare these numbers before investing.
Who should consider them
- Investors with a horizon of 7–10 years or more.
- Those who already have a core of large cap, index or flexi cap funds.
- People who can watch a big fall without stopping their SIP.
Many investors cap small caps at 10–20% of their equity money.
How to invest
A SIP is usually better than a lump sum here: spreading purchases over years smooths the extreme swings. Don't switch funds based on one year's rank; small cap returns vary hugely year to year.
Tax
Like other equity funds: 20% within 12 months; 12.5% on gains above ₹1.25 lakh a year after.
Mutual fund investments are subject to market risks; read all scheme-related documents carefully.
For general information only, not investment advice or a recommendation. Oxon Fintech is a loan facilitation platform, not a SEBI-registered investment adviser, bank or mutual fund distributor, and does not sell bonds, deposits or funds. Rates and rules are as checked on the date above; confirm with the issuer, bank or fund house before investing. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.