What is a Small Cap Fund? Reasons to Invest in HDFC Small Cap Fund 

Charlotte Miller

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Investing in small-cap mutual funds can help you grow your wealth. Small-cap funds, in particular, offer a unique and interesting investment choice to small-cap businesses. These funds have the potential to grow quickly, provide greater variety in your investments, and support the growth of small companies.

In this article, we will explore what Small Cap funds are and reasons why investing in these funds can be a good idea. 

What is a Small Cap Fund?

Small Cap funds invest their corpus in companies with less than 500 crore market capitalization. According to the Securities and Exchange Board of India (SEBI), companies beyond the 251st rank fall under the category of small-cap businesses. SEBI has established a new classification system for mutual funds that defines small-cap funds based on market capitalization rankings. The system, which took effect in 2018, categorizes the top 100 stocks as large-cap, the 101st to 250th stocks as mid-cap, and any stocks ranked beyond 251 as small-cap. 

Investing in the HDFC Small Cap Fund can be a unique and engaging option for investors.

It was started in April 2008 as a Multi-cap Fund but later changed to the HDFC Small and Midcap Fund. 

Benefits of Investing in HDFC Small Cap Funds 

There are multiple benefits of investing in HDFC small-cap mutual funds, including.  

Increased Diversification 

Adding small-size funds to your business portfolio can boost diversification. Small-cap companies often work for broader market trends, unlike large or mid-cap stocks. By spreading your investments across different market segments, lowering the overall risk of your portfolio is possible.

Investing in small-cap funds like HDFC Mutual Fund provides greater security and flexibility for your support in response to market fluctuations.

High Growth Potential 

Small Cap funds target companies with smaller market capitalization to invest. These companies possess higher growth potential due to their flexibility in adapting the new market trends and expanding their business activities.

By investing in small-cap funds, you gain disclosure of the growth prospects of promising companies. These funds promise high returns in the long term but are riskier than other equity-focused funds. 

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Early Entry to Lucrative Investment 

By investing in small-cap funds, you can get in early on investments that have the potential to yield high profits. Small companies are generally overlooked by the big investors, leaving a benefit for individual investors to identify underrated gems before gaining attention. Take advantage of early entry and position yourself for potential long-term success in the small-cap segment.

Provide Support to Emerging Companies 

By investing these funds, You have the opportunity to support the development and expansion of up-and-coming businesses in their early stages. Early-stage companies are the base for future markets. 

Investing in small companies can give you a good opportunity to benefit from the growth of innovative businesses that are not available through larger investments.


Investing small-cap funds into your portfolio helps you grow, potentially increase diversification, and establish a long-term benefit. You can explore the other benefits of a trusted investment industry.