List of Best Penny Stock Mutual Funds in India
Low-priced stocks, known as penny stocks with small market capitalisation, are traded at very low prices, usually below Rs 10. However, due to their speculative nature, high volatility, and limited financial information, they are potentially prone to risks. While some investors may be attracted to penny stocks due to their low prices and potential returns, others find it quite challenging. Therefore, in India, mutual fund investments in penny stocks have tried to bridge the gap for those who are hesitant to invest in penny stocks. If you’re considering investing in low-priced stocks in India, mutual funds could provide an avenue to explore.
In this blog, we will learn more about penny stocks held by mutual funds and discover what are the best penny stocks in India that mutual funds invest in. We’ll also guide you through the best penny stock mutual funds.
List of Best Penny Stocks Mutual Funds in India
Let’s have a look at the mutual funds that invest in penny stocks in India:
| Fund Name | AUM (Rs. in cr.) | Expense Ratio (%) | 3Y CAGR (%) |
|---|---|---|---|
| HDFC Small Cap Fund | 36,294.07 | 0.69 | 23.72 |
| Nippon India Small Cap Fund | 65,922.00 | 0.64 | 23.62 |
| Franklin India Smaller Companies Fund | 13,302.32 | 0.90 | 22.45 |
| Axis Small Cap Fund | 25,568.92 | 0.57 | 19.78 |
| UTI Small Cap Fund | 4,681.06 | 0.64 | 19.04 |
| ICICI Prudential Smallcap Fund | 8,441.09 | 0.73 | 18.77 |
| Kotak Small Cap Fund | 17,508.37 | 0.52 | 16.95 |
| SBI Small Cap Fund | 35,244.91 | 0.74 | 15.46 |
Note: The data on the top penny stock mutual funds in India in the list is from 11th September 2025, and is derived from Tickertape Mutual Fund Screener.
- Plan: Growth
- 3Y CAGR: Sorted from highest to lowest.
🚀 Pro Tip: You can use Tickertape’s Stock Screener to research and evaluate stocks with over 200+ filters and parameters.
Top Penny Stocks Mutual Funds Overview
HDFC Small Cap Fund
HDFC Small Cap Fund targets companies in the small-cap segment, emphasising businesses with scalable models and strong fundamentals. Its portfolio typically spans multiple sectors, aiming to capture opportunities in under-researched stocks while managing risks linked to smaller-sized companies through diversification.
Nippon India Small Cap Fund
Nippon India Small Cap Fund is one of the largest in its category, with broad exposure across industries. It seeks to capture opportunities among small and emerging companies, often including niche businesses, while navigating the higher volatility associated with small-cap investments.
Franklin India Smaller Companies Fund
Franklin India Smaller Companies Fund invests mainly in mid and small-cap stocks. It adopts a blend of growth and value investing, seeking opportunities in companies with strong fundamentals. The fund aims to balance exposure across sectors to manage volatility in this segment.
Axis Small Cap Fund
Axis Small Cap Fund invests in small-cap stocks, focusing on companies with consistent earnings and competitive advantages. The fund follows a quality-oriented investment style, aiming to identify long-term business potential while balancing risks inherent to the small-cap category through sectoral spread.
UTI Small Cap Fund
UTI Small Cap Fund focuses on companies within the small-cap universe, aiming to identify businesses with scalable opportunities. Its portfolio is typically diversified across industries, providing exposure to emerging firms that may benefit from structural economic trends.
ICICI Prudential Smallcap Fund
ICICI Prudential Smallcap Fund allocates its corpus to small-cap companies across various sectors. The fund uses a research-driven approach, focusing on identifying businesses with sustainable growth drivers. Its portfolio tends to be diversified to mitigate the risks associated with smaller companies.
Kotak Small Cap Fund
Kotak Small Cap Fund invests predominantly in small-cap stocks, following a strategy that emphasises quality and growth prospects. The portfolio spans multiple sectors, aiming to capture opportunities in emerging businesses while managing the inherent volatility of the small-cap category.
SBI Small Cap Fund
SBI Small Cap Fund invests primarily in small-cap companies across sectors, focusing on businesses with growth potential. The fund follows a bottom-up stock-picking approach and holds a diversified portfolio, giving exposure to emerging companies that may benefit from economic and sectoral shifts over time.
How to Invest in the Best Penny Stocks in Mutual Funds?
You can easily invest in penny stock mutual funds by following these steps:
- 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 penny stock mutual fund that aligns with your investment thesis. You can easily select and learn more about the best penny stock mutual 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!
- Once you have selected the best 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 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!
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 Penny Stock Mutual Funds?
As the name suggests, penny stock mutual funds are mutual fund schemes that primarily invest in penny stocks in India. Like any other mutual fund, penny stocks owned by mutual funds are managed by professional fund managers. These managers conduct thorough research and analysis, making investment decisions on behalf of investors. Thus, these mutual funds generally adopt a high-risk, high-reward strategy, aiming for substantial returns. If you’re wondering what are penny stocks and how to invest in them effectively, these funds can offer expert-backed solutions.
How Do Penny Stock Mutual Funds Work?
The top penny stocks mutual funds are low-priced and often small-cap equity mutual funds of small companies. These stocks may experience abrupt and substantial increases in value. They are characterised by infrequent trading activity and a limited number of shareholders. Investors may benefit from these penny stock mutual funds in India due to the potential for rapid growth.
Benefits of Investing in Penny Stocks in Mutual Funds
Despite the associated risks, opting for the top penny stock mutual funds can offer investors the opportunity for substantial returns.
- High Growth Potential: Penny stock mutual funds in India offer investors the opportunity for rapid growth through exposure to undervalued penny stocks in India for long term.
- Professional Management: Fund managers leverage expertise to identify the best penny stocks with high returns, helping investors maximise potential gains.
- Diversification: Investing in multiple penny shares in India through mutual funds reduces risks compared to buying individual stocks.
- Accessibility: High-return penny mutual funds can provide a structured and managed approach to investing in penny stocks.
- Portfolio Growth: For those aiming to diversify, penny stock mutual funds in India can complement existing investments, balancing risk and reward.
Risks Involved While Investing in Penny Stocks Mutual Funds
Investing in the top penny stock mutual funds can be quite challenging. Here are a few risks you should be aware about:
- Liquidity Challenges: Penny stock mutual funds in India often deal with thinly traded stocks, making them difficult to buy or sell quickly.
- Price Manipulation: Even the fundamentally strong penny stocks are sometimes prone to price manipulation, increasing investment risks.
- Fraud Potential: Some penny shares in India lack regulatory oversight, making them susceptible to fraudulent schemes.
- Limited Transparency: Even the top-performing penny stocks can sometimes lack analyst coverage or detailed financial reports, reducing access to reliable information.
- High Volatility: The top 10 mutual funds in India investing in the best performing penny stocks can experience extreme price fluctuations, posing significant risks.
Taxation on the Penny Stock Mutual Funds
Understanding the latest tax regulations on penny stock mutual funds is essential for making informed investment decisions. The Union Budget 2024 has introduced significant changes to the taxation of penny stock mutual funds, simplifying the tax structure while altering rates and benefits. Here is a detailed breakdown of the new tax rules on equity funds that also apply to the penny stock mutual funds listed here:
Equity 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% |
No Indexation Benefit: This change affects the overall tax liability, potentially increasing it for long-term investors.
Factors to Consider Before Investing in the Best Penny Stocks Mutual Funds
Before investing in the best penny stock mutual funds, consider the following factors:
- Risk Tolerance: Assess your risk tolerance as penny equity funds can be highly volatile. Ensure that the level of risk aligns with your investment preferences.
- Fund Manager’s Expertise: Evaluate the experience and track record of the fund manager. A skilled manager can navigate the challenges of penny stocks in India for long term investments more effectively.
- Diversification: Check the fund’s diversification strategy. Diversified portfolios can mitigate risks tied to individual penny shares in India options.
- Performance History: Review the fund’s historical performance, keeping in mind that past performance does not guarantee results in thew future of penny stocks held by mutual funds. Consistent returns and adherence to the investment strategy are key for small-cap mutual funds.
- Fees and Expenses: Understand the fund’s fee structure, including expense ratios and any additional charges. Lower expenses can contribute to higher returns over time.
- Investment Goals: Define your goals. Whether you’re seeking the best penny stocks with high returns or stable growth, choose the top penny stock mutual funds that align with your timeline and objectives.
- Liquidity: Assess the liquidity of the fund’s underlying assets. Liquidity issues can impact the ability to buy or sell shares at desired prices.
To Wrap It Up…
Investing in the top penny stock mutual funds in India presents a high-risk, high-reward option. Despite the potential for substantial returns, investors should be mindful of the inherent risks. Thorough research and due diligence are imperative before venturing into penny stock mutual funds. Like any investment, seeking guidance from a financial advisor is essential to ascertain alignment with your investment goals and risk tolerance.
Looking for a Loan Against Mutual Funds (LAMF)? Explore LAMF on smallcase –
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Frequently Asked Questions(FAQs) on Top Penny Stock Mutual Funds
Due to high volatility and inherent risks, small-cap penny stocks bought by mutual funds can be suitable for short-term, speculative plays, not long-term holds. However, it ultimately comes down to the investor’s risk tolerance and investment objective and the investment time can vary as these are subject to changes.
The penny stocks holding by mutual funds typically invest in stocks with low market prices, often below Rs. 5 per share. These funds may target small and speculative companies, aiming for potentially high returns but also presenting higher risks.
Yes, penny stock mutual funds are regulated by the Securities and Exchange Board of India (SEBI). SEBI categorises mutual funds based on their investment mandate, specifying the minimum and maximum percentage they can invest in different asset classes like large-cap, mid-cap, and small-cap stocks.
Returns on the top penny stock mutual funds vary widely. They can provide high returns, but the volatility of penny stocks for beginners entails higher risks. Past performance doesn’t guarantee future results. However, it’s important to do your own research and/or consult a financial advisor before investing.
Although there is no timeline as it depends on the risk appetite of the investor. However, you can consider exploring penny stock opportunities in mutual funds if you have a high-risk tolerance, seek potential high returns, and can withstand the volatility associated with these stocks. Investors should comprehend both the growth potential and the challenges confronted by agricultural companies.
