Small-cap stocks are shares of companies ranked 251st and below by market capitalisation on Indian exchanges, as classified under SEBI's mutual fund guidelines. These companies are typically in early or mid-growth stages, operating in niche markets or regional businesses that are not yet large enough to attract wide institutional coverage. Small-caps carry the highest risk within the equity universe—they can be illiquid, more susceptible to economic downturns, and prone to sharper price swings. However, they also offer the potential for the highest long-term returns, as successful small-caps that scale into mid or large-caps can deliver multibagger gains over time.
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