What Are Small-Cap and Mid-Cap Funds?
When you’re exploring mutual funds, small-cap and mid-cap funds stand out for their potential to deliver higher-than-average returns. But what exactly are they?
➡️ Small-cap funds invest in companies with smaller market capitalization, usually under ₹5,000 crore.
➡️ Mid-cap funds focus on medium-sized companies ranked between 101–250 in market capitalization.
These companies may not be giants yet—but they’re full of growth potential, just waiting for the right market conditions to thrive.
Why Consider Small-Cap and Mid-Cap Funds in 2025?
2025 has indeed been a rough ride for equity investors like you. A staggering 88% of equity mutual funds posted negative returns so far. Even some popular funds took a hit:
➡️ Samco Flexi Cap Fund: -14.34% YTD
➡️ Others showed even more volatility.
But here’s why you shouldn’t write them off just yet:
➡️ These downturns are often short-term blips in a longer growth journey.
➡️ India’s economy is in a recovery phase, which often boosts smaller companies the most.
➡️ Historically, funds like Bandhan Small Cap (35.17% CAGR) and Bank of India Small Cap (33.79% CAGR) have delivered stellar long-term results.
Top Performing Small-Cap and Mid-Cap Funds (2025 Watchlist)
If you’re looking to invest smartly, keep an eye on these funds:
1. Bandhan Small Cap Fund
CAGR: 35.17% (5 years)
Strong track record despite recent dips
Invests in high-growth potential sectors like infra, manufacturing
Bank of India Small Cap Fund
CAGR: 33.79% (5 years)
Smart allocation across defensive and cyclical stocks
Consistent performance in various market cycles
Axis Midcap Fund
Known for lower volatility than most peers
Balanced portfolio with IT and pharma exposure
Pros and Cons of Investing in Small-Cap and Mid-Cap Funds
Let’s break down what works for—and against—you as an investor.
✅ Pros
➡️High growth potential over 5–10 years
➡️Diversification from large-cap-heavy portfolios
➡️ Ideal for aggressive investors seeking alpha returns
❌ Cons
➡️ Short-term volatility is high
➡️ Not suitable for risk-averse or short-term investors
➡️ May need longer lock-in to benefit fully
Tips Before You Invest
Before you add these funds to your portfolio, make sure to:
✅ Align your investments with your financial goals.
📊 Opt for SIP instead of lumpsum to reduce volatility risk.
🧾 Stay invested for at least 5 years.
🔎 Compare expense ratios, fund manager track record, and portfolio holdings.
Should You Still Bet on Small-Cap and Mid-Cap Funds in 2025?
If you’re someone who:
➡️ Has a long-term investment horizon,
➡️ Can tolerate market fluctuations,
➡️ And wants to ride the next economic wave,
Then yes—small-cap and mid-cap funds still deserve a place in your portfolio.
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FAQs
Are small-cap and mid-cap funds risky?
Yes, they’re more volatile than large-cap funds. But the risk can be mitigated with long-term investing.
2. What’s the ideal time horizon for these funds?
At least 5–7 years to allow recovery from market dips and realize potential gains.
Can I invest through SIPs?
Absolutely. SIPs are the best way to average out costs in volatile funds.
Final Thoughts
In a year like 2025, when the markets are testing your patience, staying focused on the long-term story of small-cap and mid-cap funds can be your smartest move.
You now have the facts, the fund names, and the strategy. Now, it’s up to you—will you invest in potential or settle for safety?
✅ Internal Link
If you want a broader view beyond small- and mid-cap categories, check out our guide on the Best Mutual Funds to Invest in 2025.”
✅ External Link
“To understand how SEBI defines small-cap and mid-cap funds, refer to the official SEBI Mutual Fund Categorization Guidelines.”