Best Micro Cap Funds in India 2025: Meaning, Taxation, Advantages, Risks
Investors have tried to beat the market’s average return ever since stock markets came into existence. Some choose large corporations, while others opt for smaller companies. Some investors ignore company size and focus on businesses that can potentially generate returns higher than the market average. Others prefer microcap companies. It sounds interesting, and it sets the stage for the best microcap mutual funds for 2025 and the ways 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 10th November 2025. This data is derived from the Tickertape Mutual Funds Screener.
- Plan: Growth
- AUM: Less than ₹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
HDFC Infrastructure Fund
HDFC Infrastructure Fund invests in companies operating in sectors such as energy, utilities, construction, and transportation. The fund focuses on India’s long-term infrastructure development and includes businesses linked to capital goods, engineering, and industrial expansion.
ICICI Pru Bharat 22 FOF
ICICI Pru Bharat 22 FOF invests in the Bharat 22 ETF, offering exposure to a diversified basket of public sector and private sector companies across infrastructure, utilities, financial services, and manufacturing, based on the Government of India’s Bharat 22 index.
Quant Infrastructure Fund
The Quant Infrastructure Fund focuses on companies operating in infrastructure-linked sectors, including engineering, construction, energy, telecommunications, and transportation. The fund uses a dynamic, data-driven approach to identify opportunities connected to India’s ongoing infrastructure and industrial growth.
Bandhan Infrastructure Fund
Bandhan Infrastructure Fund invests across infrastructure-related businesses, including power, transport, telecom, industrial manufacturing, and urban development. The fund aims to capture growth from India’s expanding physical and digital infrastructure ecosystem through diversified sector exposure.
Franklin Build India Fund
Franklin Build India Fund invests in companies engaged in infrastructure development, including construction, engineering, cement, utilities, and energy. The fund aims to benefit from India’s long-term capital expenditure cycle and broader economic development themes across core infrastructure sectors.
What are Micro Cap Funds in India?
Micro Cap Mutual Funds invest in the smallest publicly traded companies, known as microcap stocks. These funds provide investors with exposure to companies with a market capitalisation of less than ₹3,500 crore. Investors explore a diversified portfolio of these smaller firms, aiming to benefit from their potential for significant growth and returns. Microcap funds help investors access stocks from smaller companies. The limited liquidity and small shareholder base increase the sharpness with which these extremely small-cap companies react to market shocks. These funds carry elevated risks due to their limited liquidity and smaller shareholder base, which makes microcap companies more vulnerable to market fluctuations. Investors who accept these risks may find substantial potential rewards.
Taxation on Micro Cap Mutual Funds as per the Union Budget of 2024-25
The taxation on capital gains from your mutual fund investments is based on the holding periods and asset allocation of the funds. A few revisions were made to the tax rates, depending on their types, in the Union Budget 2024-25. To select the best micro-cap mutual funds, it is essential to understand these revisions as well.
| Type | Holding Period | Tax Rate (Post Union Budget 2024–25) | Key Details |
| Short-Term Capital Gains | Up to 12 months | 20% | Applies when units are sold within 1 year |
| Long-Term Capital Gains | More than 12 months | 12.5% on gains above ₹1.25 lakh | Exemption limit increased from ₹1 lakh to ₹1.25 lakh |
| Indexation Benefit | Not applicable | Removed | No indexation allowed for equity-oriented mutual funds |
| Dividend Taxation | Annual | Taxed as per the individual income tax slab | Dividends are added to the total taxable income |
How to Invest in Micro-cap Funds?
You can easily start to invest in micro-cap mutual funds by following these steps:
- To invest in the best micro-cap mutual funds, you can visit a mutual fund investment platform such as smallcase.
- The next step is to research and identify micro-cap mutual funds that align with your financial goals. Tools like the Tickertape Mutual Fund Screener can help you filter and compare funds based on parameters such as returns, expense ratio, and fund size.
- Once you shortlist the funds, visit smallcase, log in, and search for the fund by name. You can then choose the investment mode, either a one-time or lump sum, and complete the process.
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 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 mn. 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 focus on 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 the process.
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. Still, 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 Capitalisation | Invests in companies with a market cap typically below ₹3500 cr. | Market cap ranking less than ₹5000 cr |
| Risk and Volatility | Generally, liquidity is better in micro-cap funds compared to other types, but it 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 |
What are the Returns on the Best Micro-cap Mutual Funds, and How are they Calculated?
Returns on the best micro-cap mutual funds vary widely because the underlying portfolio of micro-cap stocks influences performance. The calculation uses the percentage change in the fund’s net asset value (NAV) over a specific period. The period can be monthly, quarterly, or annual. Investors review the fund’s historical performance, examining both short-term and long-term returns. Historical returns do not guarantee future performance, as market conditions, fund management, and economic trends significantly influence how these funds perform.
Features of Micro Cap Mutual Funds
- Market Coverage: Can primarily invest in companies with market capitalisation ranging from ₹150 cr to ₹3,500 cr (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: They typically have lower minimum investment requirements compared to other mutual funds, making them accessible to a broader range of investors.
- Higher Volatility: Microcap 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.
Benefits of Investing in Micro Cap Funds in India
- Focus on Micro-Cap Companies: These are typically small, relatively unknown companies with a market capitalisation of less than ₹3500 cr.
- High Growth Potential: The primary attraction of high-potential micro-cap mutual funds is the potential for significant returns. Since these companies might still be 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 typically managed actively by fund managers who possess expertise in researching and selecting 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.
Risks Involved While Investing in Micro-cap Funds
- High Volatility: Microcap stocks move sharply because smaller businesses react faster to changes in demand, earnings and market sentiment. This results in frequent fluctuations in the fund’s value.
- Low Liquidity: Microcap companies usually trade with fewer buyers and sellers. This makes it harder to enter or exit positions without affecting the price.
- Limited Financial Strength: Many microcap companies operate with tighter budgets and fewer financial buffers. This limited strength increases the chance of business setbacks affecting the fund.
- Higher Sensitivity to Market Conditions: Micro-cap stocks tend to respond quickly to economic shifts and sector-specific news. Their prices tend to decline more rapidly during market downturns.
- Unstable Performance Patterns: Micro-cap funds show wide variations in returns because stock prices depend heavily on sentiment, early-stage growth and company-specific events.
Factors to Consider Before Investing in Micro-cap Mutual Funds
- Investment Horizon: Micro-cap funds in India tend to perform better with a long-term time frame, as their prices fluctuate sharply in the short term. A longer horizon gives the portfolio time to handle these swings.
- Risk Tolerance: Micro-cap funds carry higher volatility. Investors who choose them generally stay comfortable with noticeable movement in their portfolio value.
- Portfolio Diversification: A well-balanced portfolio reduces the impact of microcap volatility. Investors often check whether their existing mix of assets can absorb the higher risk.
- Fund Manager Approach: Performance varies widely across micro-cap funds. Understanding the manager’s strategy and stock selection style helps set expectations.
- Market Environment: Micro-cap stocks react quickly to economic changes. Investors can review how current market conditions may influence near-term performance.
- Liquidity Needs: Micro-cap stocks trade with lower volumes. Individuals with short-term liquidity needs may find it more challenging to exit at a preferred price.
- Cost Structure: Expense ratios differ across micro-cap funds in India. Costs play a significant role in overall returns, so investors often compare them before selecting a fund.
To Wrap It Up
Micro Cap Mutual Funds provide investors with a means to tap into the growth potential of the smallest publicly traded companies. These funds offer the potential for high returns but come with increased volatility and risk. Anyone considering Micro Cap Mutual Funds can assess their risk tolerance, investment goals and time horizon. It remains essential to conduct your own research and consult a financial advisor before making any investment.
Looking for a Loan Against Mutual Funds (LAMF)? Explore LAMF on smallcase –
You can now apply for a loan against mutual funds (LAMF) on smallcase. Explore the quick and paperless process with the following articles about the eligibility criteria, documents required, features, benefits and more on LAMF at smallcase!
Frequently Asked Questions (FAQs) on Micro Cap Mutual Funds
Micro-cap companies are smaller than small-cap companies. Fund managers prefer closed-end microcap funds because this approach allows for the control of cash inflow and outflow. This control enables asset managers to make informed decisions, supporting microcap investment funds in efficiently managing their liquidity.
Investors typically stay invested for the long haul, which is defined as five years or more. This gives them time to handle volatility and capitalise on the high growth potential of microcaps. Such a horizon suits high-growth micro-cap funds focused on long-term wealth creation.
Micro-cap mutual funds look for under-the-radar companies with strong growth potential. These companies typically fall in the range of ₹150 cr to ₹3,500 cr. Funds spread investments across different sectors to balance risk and aim for higher returns. The microcap mutual fund performance often depends on how well these smaller firms scale over time.
You may consider investing in microcap funds in India if you have a high risk tolerance, a five-year or longer investment horizon, a diversified portfolio, and a skilled manager with a solid investment strategy. These traits align with microcap funds that seek long-term growth, focusing on capital appreciation over extended periods of time.
Micro-cap index funds usually have no lock-in period. You can buy and sell units at any time they trade during market hours. This flexibility makes them an accessible option among microcap equity funds for both new and experienced investors.
Mega-cap companies are the largest in the market, while micro-cap companies usually have valuations below ₹3,500 cr. Investors seeking opportunities in high-return microcap funds often focus on this smaller segment for its higher growth potential.
