19 Dec 2025
Kotak Small Cap Fund open ended equity scheme predominantly investing in small cap stocks as defined under SEBI’s mutual fund categorisation framework. As per regulations, small cap funds must allocate at least 65% of their total assets to equity and equity related instruments of companies ranked 251st and beyond by full market capitalisation. These businesses are usually in their early to mid growth phase and offer meaningful possible long term wealth creation potential along with higher short term volatility. Kotak Small Cap Fund follows a research driven, bottom up stock selection approach and aims to generate potential long term capital appreciation by identifying scalable, fundamentally strong small cap companies.
Key Takeaways
- The fund invests a minimum 65% of its assets in small cap companies as per SEBI’s Categorization circular.
- While maintaining its small cap focus, the fund can invest in other equities, debt, money market instruments and REITs/InvITs within permitted limits for liquidity management
- Small caps can deliver possible higher returns over long periods but also face sharper short term volatility & are subject to market risks.
- A systematic plan can help average out volatility and support disciplined wealth creation
- Suitable for investors comfortable with market fluctuations and willing to stay invested for 5+ years or more
What is a Small Cap Fund ?
According to SEBI’s mutual fund categorisation framework a Small Cap Fund is required to invest a minimum of 65% of its total assets in equity and equity related instruments of small cap companies
Under the SEBI mandated market capitalisation classification small cap companies are those that fall below the top 250 listed companies i.e. they are ranked 251st and onwards by full market capitalisation.
Why Consider Kotak Smallcap Fund?
1) Dedicated Small Cap Equity Focus
The scheme invests a minimum of 65% of its assets in equity and equity related instruments of companies classified as small cap (i.e. ranked 251 and onwards by full market capitalisation)
2) Diversification Across Equity and Asset Classes
Beyond the primary small cap equity allocation (65–100%) the scheme may invest up to 35% of assets in equity of other companies and up to 35% in debt and money market instruments
3) Fundamental, Growth Oriented Stock Selection
The fund follows a disciplined and research driven small cap fund investment strategy focusing on companies that
- Offer proven products/services and sustainable earnings growth
- Are in the early/mid stage of business lifecycle (but not start ups)
- Trade at valuations that reflect upside potential
- This bottom up approach supports the fund’s objective of long term capital appreciation
4) Broad Market Cycle Participation
Because the fund is invested across small cap equities and retains flexibility for other equities and debt/money market instruments it is positioned to participate during growth phases and moderate risk during downturns. This makes it suitable for investors willing to stay invested over a full market cycle
5) Liquidity Management Capabilities
The scheme allows investments into debt/money market instruments and REITs/InvITs, within defined limits. This provides a buffer and enables the fund to manage liquidity/redemption pressures more effectively than a pure small cap equity only fund
6) Experienced Management
The fund is managed by a seasoned portfolio manager supported by the research team at the AMC. Their experience and structured investment framework help navigate the complexities of small cap investing
7) Accessible Entry & SIP Friendly
The minimum investment amount is only ₹ 100 for initial, additional and SIP investments. This low threshold makes the fund easily accessible to regular investors and the SIP route helps smooth market volatility through cost averaging
Investors shall refer to SID for more details of the scheme or visit our website for the same.
Who Should Consider This Fund?
- Investors With a Long Term Investment Horizon: Since the scheme primarily invests in small cap companies which may experience higher short term volatility but may offer long term growth potential it is suitable for investors who can remain invested for 5 years or more to allow market cycles to play out
- Investors Seeking Exposure to Small Cap Equities: The fund maintains a minimum of 65% allocation to small cap companies as defined under SEBI’s categorisation framework. Those who want diversified exposure to emerging businesses through a professionally managed Small Cap Mutual Fund may find this scheme suitable for their portfolio
- Growth Oriented Investors With Higher Risk Tolerance: Small cap stocks may experience sharper price fluctuations compared to large and mid cap companies. Investors who understand and are comfortable with this higher risk higher potential return profile may find the fund suitable
- Investors Looking for a Diversified Small Cap Portfolio: Instead of selecting individual small cap stocks, investors who prefer a professionally managed and diversified portfolio spread across businesses, sectors and opportunities may consider this fund
- SIP Oriented Investors Building Long Term Wealth: Given the volatility inherent in small caps a Systematic Investment Plan (SIP) can help average the cost over time. Investors looking for a disciplined and gradual approach to wealth creation may find SIPs in this fund beneficial.
Key Considerations Before Investing
1) Equity Category With High risk Exposure
By nature small cap investing comes with higher volatility. Understanding Small Cap Fund Meaning and how this category behaves can help set expectations correctly
2) Long Term Commitment Needed
This fund is suitable only if you can stay invested for 5+ years or more allowing small companies enough time to grow
3) Not Ideal for Conservative Investors
Since small caps are more volatile and less liquid this fund is not recommended if you prefer stable & low risk investments
4) SIP Works Better
Due to high volatility investing through SIP helps average out costs and reduces timing risk
Conclusion
Kotak Small Cap Fund is designed for investors seeking potential long term growth through exposure to emerging companies. Its SEBI compliant structure, research backed investment process and diversification flexibility help manage the unique risks associated with the small cap segment. While the fund offers strong wealth building potential it is suitable only for investors with a higher risk appetite and a long investment horizon. SIPs, disciplined investing and an understanding of market cycles can help investors benefit from the fund’s long term opportunities.
FAQs
1) What is the minimum investment amount?
The minimum investment amount is ₹100 for lumpsum and SIP making it accessible for retail investors
Investors shall refer to SID for more details of the scheme or visit our website for the same.
2) What is the suitable investment horizon for this fund?
A minimum of 5+ is recommended to allow small cap companies to grow and to ride out market volatility.
3) Are small cap funds very risky?
Small cap funds face higher price fluctuations, lower liquidity and can be more sensitive to market events. However they also offer possible higher long term growth potential.
4) Can I stop or pause my SIP anytime?
Investors can start, stop or modify their SIP at any time subject to the mutual fund’s SIP terms.
Disclaimers
Kotak Small Cap Fund
An open ended equity scheme predominantly investing in small cap stocks
Investors may consult their Financial Advisors and/or Tax advisors before making any investment decision.
These materials are not intended for distribution to or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
