Small Cap Mutual Funds

Who Should Invest in Small Cap Funds?

• Investors With High-Risk Tolerance

  Small-cap funds invest in smaller-sized companies, which can be more volatile and risky than large-cap stocks, making these funds a suitable choice for investors with a high-risk appetite.

• Investors With Long-Term Horizon

  Small-cap funds are quite volatile in the short term and typically need a longer time horizon to ride out the ups and downs of the stock market. These funds are suitable if you are investing for a goal that’s some time away.

• Investors Seeking Sharp Growth

  Small-cap stocks are often in their expansion phase and have higher growth potential than larger, more established companies. If you are seeking growth opportunities and can accept the associated risks, then you can consider small-cap funds.

Taxation Of Small Cap Funds

Capital gains earned from the redemption of small-cap funds are subject to the same tax treatment as that applicable to equity funds. Capital gains tax depends on the holding period i.e. how long your money was invested in the small-cap mutual fund.

• Short-term Capital Gains Tax

  If your holding period is less than a year from the investment date, short-term capital gains tax is applicable on the gains made on redemption at the rate of 20%.

• Long-term Capital Gains Tax

  If the holding period is over a year from the investment date, a long-term capital gains tax of 12.5% applies on gains above ₹1.25 lakh. On gains less than ₹1.25 lakh, no tax is applicable.