A Small Cap Fund is a type of mutual fund that invests primarily in small-cap companies, which have relatively lower market capitalization but high growth potential.
Small Cap Funds focus on companies ranked beyond the top 250 (as per SEBI classification in India). These companies are often in their early growth stage and can deliver high returns over time.
However, they also come with higher volatility and risk compared to large-cap or mid-cap funds. These funds are regulated by the Securities and Exchange Board of India.
"An investor invests in a small cap fund that holds emerging companies, aiming for high long-term returns over 7–10 years."