Best Micro Cap Mutual Funds in India 2025: Top High Return Funds
Ever since stock markets were created, investors have consistently crafted strategies aimed at surpassing the market’s average return. Some opt for investments in large corporations, while others focus on smaller companies. Some may disregard company size altogether and invest in companies of any scale as long as they exhibit the potential to generate returns that outpace the market. Lastly, others primarily might want to invest in micro cap companies. Sounds interesting, right? Let’s discuss the best micro-cap mutual funds 2025 and how you can invest in them.
List of Best Micro-cap Mutual Funds in India 2025
Here is a list of the best micro cap mutual funds India that you can explore.
| Name | Sub Category | AUM (Cr.) | CAGR 3Y (%) | CAGR 5Y (%) |
|---|---|---|---|---|
| Quant Infrastructure Fund | Sectoral Fund - Infrastructure | 3,172.91 | 25.58 | 42.56 |
| ICICI Pru Commodities Fund | Thematic Fund | 2,619.98 | 19.98 | 39.31 |
| Bandhan Infrastructure Fund | Sectoral Fund - Infrastructure | 1,577.17 | 32.40 | 38.12 |
| HDFC Infrastructure Fund | Sectoral Fund - Infrastructure | 2,392.50 | 35.66 | 37.61 |
| Sundaram LT Micro Cap Tax Adv Fund-Sr VI | Equity Linked Savings Scheme (ELSS) | 33.85 | 22.35 | 37.42 |
| Bank of India Small Cap Fund | Small Cap Fund | 1,638.51 | 25.79 | 37.38 |
| Franklin Build India Fund | Sectoral Fund - Infrastructure | 2,725.60 | 34.00 | 36.88 |
| Sundaram LT Tax Adv Fund-Sr III | Equity Linked Savings Scheme (ELSS) | 31.10 | 22.75 | 36.57 |
| Sundaram LT Micro Cap Tax Adv Fund-Sr V | Equity Linked Savings Scheme (ELSS) | 28.01 | 21.51 | 36.20 |
| Sundaram LT Micro Cap Tax Adv Fund-Sr IV | Equity Linked Savings Scheme (ELSS) | 33.14 | 22.10 | 36.16 |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.
Note: The data on the top micro cap companies in India in the list is from 14th May 2025. This data is derived from the Tickertape Mutual Funds Screener.
- Plan: Growth
- AUM: Less than Rs. 3,500 cr.
- CAGR 5Y – Sorted from highest to lowest
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Top Micro-cap Funds – Overview
Let’s discuss the top micro-cap funds in India.
Quant Infrastructure Fund
This scheme primarily aims to generate capital appreciation and facilitate long-term growth by investing in companies focused on infrastructure. Among the high-growth mutual funds, it takes a sectoral approach, targeting businesses that stand to benefit from India’s ongoing infrastructure development initiatives.
ICICI Prudential Commodities Fund
With a long-term capital appreciation goal, this fund predominantly invests in equity and equity-related securities of companies engaged in commodities and related sectors. It is ideal for investors seeking exposure to businesses influenced by global commodity cycles such as metals, energy, and agriculture.
Bandhan Infrastructure Fund
Among the top-performing micro-cap mutual funds, this fund targets long-term capital growth through an actively managed, diversified portfolio consisting mainly of equities and equity-related instruments in companies driving or benefiting from infrastructure development across India.
HDFC Infrastructure Fund
This fund seeks to generate long-term capital appreciation or income by investing primarily in equities of companies directly involved in or expected to benefit from the expansion of India’s infrastructure landscape. It provides thematic exposure to sectors like construction, power, transportation, and utilities.
Sundaram Long Term Micro Cap Tax Advantage Fund – Series VI
Structured as a 10-year close-ended equity-linked saving scheme (ELSS), this fund focuses on generating capital appreciation by investing in micro-cap companies, defined as those ranked 301st or lower by market capitalisation on the NSE. The scheme also offers income tax benefits under applicable tax laws, making it suitable for long-term investors looking to combine tax savings with high-growth potential.
How to Invest in Micro-cap Funds?
You can easily invest in microcap mutual funds by following these steps:
Once you have selected the funds based on different metrics and parameters, go to smallcase.com or the smallcase app, and login via your phone number. Click on ‘Discover‘ and enter the name of the specific mutual fund name in the search bar and hit enter. You can click on ‘invest now’ and select whether you want to invest a lump sum amount or start a SIP and start investing!
To invest in mutual funds, you can visit an equity investment platform such as smallcase or Tickertape.
The next step would be to research and identify the best microcap funds to invest in which aligns with your investment thesis. You can easily select and learn more about the best microcap funds with the help of a financial tool like the Tickertape Mutual Fund Screener. With 50+ pre-loaded filters, it helps you to create a comprehensive list by giving insights about the fund’s performance. Try it now!
However, if you’re confused about which stocks to pick, you can explore smallcases:
- smallcases are readymade model portfolios of stocks/ETFs, that are based on a theme idea or strategy
- They’re created and managed by SEBI-registered investment experts (also known as smallcase managers)
- smallcase offers over 500+ stock portfolios, created by 200+ managers
Here are a few popular smallcases among new investors:
Disclosures for aforementioned smallcases
What are Micro Cap Mutual Funds?
Micro Cap Mutual Funds are investment vehicles that focus on the smallest publicly traded companies, known as micro-cap stocks. These funds aim to provide investors with exposure to companies typically characterised by a market capitalisation of less than Rs. 3,500 cr. By investing in a diversified portfolio of these smaller firms, investors seek to capitalise on their potential for significant growth.
Micro cap funds allow investors to explore stocks from these smaller companies. The limited liquidity and a small shareholder base can make these extremely small-cap companies more susceptible to market shocks. However, these funds come with elevated risks due to limited liquidity and a smaller shareholder base, making micro-cap companies more susceptible to market fluctuations. For those willing to embrace these risks, the potential rewards can be substantial.
What is the Size of Micro-Cap Funds?
The classification of micro-cap funds can vary among different fund houses. Generally, they invest based on market capitalisation or indices such as the S&P BSE SmallCap Index. In this framework:
- Large-Cap: Top 100 companies
- Mid-Cap: Next 100 companies (101-200)
- Small-Cap: Next 100 companies (201-300)
- Micro-Cap: Companies ranked 301 and below
Micro-cap funds typically target companies that rank lower than 250 in terms of market capitalisation, focusing on those with significant growth potential despite their smaller size.
How Do Micro Cap Mutual Funds Work?
Microcap funds work by pooling investor capital to invest in microcap stocks—companies with market capitalisations typically under $300 million. Fund managers actively research and select stocks with strong growth potential, focusing on diversification to manage risk. These funds face liquidity challenges due to the lower trading volume of microcap stocks, so managers plan trades carefully. While microcap funds are more volatile and riskier than larger-cap funds, they target long-term growth, making them ideal for investors with a high-risk tolerance and a long investment horizon. Regulatory guidelines ensure transparency and investor protection throughout.
Micro Cap vs Small Cap Mutual Fund
Micro Cap and Small Cap Mutual Funds are both types of equity mutual funds that focus on companies with relatively smaller market capitalisations, but they differ in the size range of the companies they target. Let’s understand their differences in a tabular form.
| Feature | Micro Cap Mutual Fund | Small Cap Mutual Fund |
|---|---|---|
| Market Capitalization | Invests in companies with a market cap typically below Rs. 3500 crores. | Market cap ranking less than Rs. 5000 Crore |
| Risk and Volatility | Generally, liquidity is better compared to micro-cap funds, but liquidity can vary based on specific holdings. | Comparatively lower than micro-cap funds as small-cap companies are more established. |
| Growth Potential | Can offer significant growth potential, as smaller companies may have more room for expansion. | Presents growth potential, but may be less than micro-cap funds |
| Diversification | Limited diversification | Comparatively better diversification benefits, but not as much as mid-cap or large-cap funds. |
| Investor Profile | Suited for investors with a higher risk tolerance and a long-term investment horizon. | Appeals to investors seeking growth opportunities with a moderate to high-risk tolerance. |
| Investment Strategy | Focus on identifying undervalued micro-cap companies | Focus on small-cap companies with growth potential |
| Liquidity Concerns | Lower liquidity compared to mid & larger-cap funds | Presents growth potential but may be less than micro-cap funds |
Features of Micro Cap Mutual Funds
Let’s have a look at the features of the best-micro cap mutual funds in India.
- Market Coverage: Can primarily invest in companies with market capitalisation ranging from Rs. 150 crore to Rs. 3,500 crore (depending on fund definition).
- Sector Diversification: Spread investments across various sectors like IT, healthcare, banking, etc., to mitigate risks associated with individual industries.
- Minimum Investment: Typically have lower minimum investment requirements compared to other mutual funds, making them accessible to a wider range of investors.
- Higher Volatility: Micro cap stocks can be generally more volatile due to their smaller size.
- Tax Benefits: Micro-cap equity mutual funds enjoy similar tax benefits (long-term capital gains tax) as other equity mutual funds.
Who Should Invest in Micro-cap Mutual Funds?
Well, Micro Cap Mutual Funds might not be for everyone! They cater to a specific type of investor who thrives on high-risk, high-reward possibilities. While the potential for significant returns exists, investors need to conduct thorough research, understand the higher level of risk, and be patient, as the growth of micro-cap stocks often occurs over an extended period.
Factors to Consider Before Investing in Micro-cap Mutual Funds
Before investing in micro cap funds in India, you must keep the following basic points in mind listed down below:
- Risk Tolerance: Assess your ability to withstand potential volatility while exploring your micro-cap fund strategy.
- Investment Horizon: Determine if you have a long-term perspective for potential growth.
- Research Capability: Ensure you can conduct thorough research due to limited analyst coverage.
- Portfolio Diversification: Consider how micro-cap funds fit into your overall portfolio diversification.
- Patience and Discipline: Be patient and disciplined, as micro-cap investments may take time to yield results.
Risks Involved While Investing in Micro-cap Funds
Given the size of micro cap companies, some investors might be drawn to invest in them. Therefore, it’s advisable to have a look at the associated potential risks below:
- High Volatility: Micro cap companies can be more sensitive to market fluctuations and economic changes than larger, established companies.
- Limited Liquidity: Since Micro-Cap companies are traded less frequently, selling your shares might be difficult and could take time.
Benefits of Investing in Micro Cap Mutual Funds in India
Let’s have a look at the undeniable benefits of the best-micro cap mutual funds India.
- Focus on Micro-Cap Companies: These are typically small, relatively unknown companies with a market capitalisation of less than Rs. 3500 cr.
- High Growth Potential: The main attraction of high-potential micro-cap mutual funds is significant returns. Since these companies might be still in their early stages, they have room to grow rapidly if their business takes off. It’s like planting a seed and hoping it blossoms into a giant tree.
- Active Management: Micro-cap equity mutual funds are usually actively managed by fund managers who have expertise in researching and picking small, promising companies. They spend their time digging deep to find hidden gems with the potential to explode.
- Diversification: While each micro cap company carries its risks, investing in a micro cap mutual fund helps spread that risk across multiple companies and sectors. It’s like putting your eggs in different baskets to avoid losing everything if one basket falls.
As always, investors must do their own research and/or consult their financial advisor before investing.
How to Choose Best Microcap Funds for Investing?
Here’s how to choose the best microcap funds for your portfolio:
- Prioritise Your Risk Tolerance and Investment Horizon: Identify and prioritise your risk tolerance since micro cap mutual funds can be highly volatile.
- Fund Management Matters: Find a fund with a seasoned manager who consistently navigates the microcap space.
- Analyse the Investment Strategy: Does the fund’s focus align with your goals? Look for growth-oriented micro-cap mutual funds with the best returns and diversified sector exposure to mitigate risk.
- Dig into Performance & Risk Management: Check the fund’s historical returns, volatility levels, and risk management practices. Past performance isn’t a guarantee, but it can offer insights.
- Fees & Expenses: Compare expense ratios and other fees across similar funds. Lower fees may translate to higher potential returns for long-term micro-cap fund investments.
- Consider Liquidity: Understand that selling microcap shares can be slow.
What are the Returns on the Best Micro-cap Mutual Funds & How are they Calculated?
The returns on the best micro-cap mutual funds can vary widely. These can also be influenced by the performance of the underlying portfolio of micro-cap stocks. Returns are typically calculated as the percentage change in the fund’s net asset value (NAV) over a specific period, often measured on a monthly, quarterly, or annual basis. Investors should check the fund’s historical performance, considering both short-term and long-term returns. It’s crucial to understand that historical returns are not indicative of future performance, and factors like market conditions, fund management, and economic trends play significant roles in shaping returns.
Taxation on Micro Cap Mutual Funds as per Union Budget of 2024-25
The taxation on capital gains from your mutual fund investments is based on their holding periods and asset allocation. A few revisions were made to the tax rates, depending on their types, in the Union Budget 2024-25. In order to select the best micro-cap mutual funds, it is important to learn about these revisions as well.
Equity Mutual Funds
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 12 months | 15% | 20% |
| Long-Term Capital Gains (LTCG) | More than 12 months | 10% | 12.50% |
- Tax-Free Limit: The capital gains up to Rs. 1.25 lakh per year are tax-free. This is an increase from the previous limit of Rs. 1 lakh.
- Tax Rate: The gains exceeding Rs. 1.25 lakh are now taxed at a flat rate of 12.5%. This is an increase from the previous rate of 10%.
- Indexation: The benefit of indexation, which allowed investors to adjust the purchase price for inflation, has been removed for all asset classes, including equity mutual funds.
Debt Mutual Funds
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 36 months | Taxed according to your income tax slab | Taxed according to your income tax slab |
| Long-Term Capital Gains (LTCG) | More than 36 months | 10% | 12.50% |
- Tax Rate: A flat 12.5% tax rate applies to these gains.
- No Indexation Benefit: The previous benefit of adjusting the purchase price for inflation is removed. Now, the entire gain after three years is taxable at 12.5%.
- Change in Holding Period for Specified Mutual Funds: Previously, debt mutual funds with a holding period of over 36 months were taxed based on the investor’s tax slab, classified as Long-Term Capital Gains (LTCG). Now, for specified mutual funds where over 65% of the investment is in debt, the holding period for taxation has been reduced to over 24 months. These funds will still be taxed according to the investor’s tax slab as either LTCG or STCG.
Hybrid Mutual Funds
| Type of Hybrid Fund | Short-Term Capital Gains (STCG) | Long-Term Capital Gains (LTCG) | Indexation Benefit |
| Equity-Oriented Hybrid Funds | 20% for holdings less than 1 year | 12.5% for holdings over 1 year, with gains up to Rs. 1.25 lakh tax-free | Not available |
| Debt-Oriented Hybrid Funds | Taxed as per income tax slab for holdings less than 3 years | 12.5% for holdings over 3 years | Not available |
Note: Mutual fund schemes where neither the equity nor debt orientation exceeds 65% will now be classified as long-term investments after 24 months. The previous holding period for these funds was 36 months. These will be taxed at the revised LTCG tax rate of 12.5%.
To Wrap It Up…
In conclusion, Micro Cap Mutual Funds offer investors a unique opportunity to tap into the growth potential of the smallest publicly traded companies. While these funds present the prospect of high returns, they come with increased volatility and risks. Investors considering Micro Cap Mutual Funds should carefully assess their risk tolerance, investment goals, and time horizon. However, it’s important to do your own research and/or consult a financial advisor before investing.
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Frequently Asked Questions (FAQs) on Micro Cap Mutual Funds
Given that micro-cap companies are smaller than even small-cap companies, fund managers tend to favour closed-end micro-cap funds. This strategy serves to control the inflow and outflow of cash, providing asset managers the flexibility to make informed decisions.
It’s advisable to aim for the long haul (5+ years) with micro-caps. Patience is key to riding out volatility and unlocking their high-growth potential.
Micro cap mutual funds hunt for hidden gems: under-the-radar companies with massive growth potential, typically valued between Rs. 150 crores and Rs. 3,500 cr. They spread their bets across diverse sectors to balance risk and unlock high returns.
Only invest in micro-cap funds India if:
1. You have high-risk tolerance & a 5+ year horizon.
2. Your portfolio is already well-diversified.
3. The fund has a skilled manager & solid strategy
Micro cap index funds typically don’t have lock-in periods. You can buy and sell units anytime they are traded during market hours.
Mega-cap companies are the largest companies, whereas micro-cap companies typically have valuations below Rs. 3,500 cr.
