New Delhi, Sept. 25 -- Small-cap funds are equity mutual funds that are required to invest at least 65% of their assets in small-cap stocks. But these are the rules for active small-cap funds, wherein the fund manager has the flexibility to select stocks and build the portfolio based on the scheme's investment strategy.

There are also passive small-cap funds, which track an underlying index and seek to replicate its portfolio. According to the rules, index funds or ETFs have to invest at least 95% of their assets in the securities of the underlying index.

The Nifty Smallcap 250 TRI (Total Return Index) is a key benchmark for small-cap funds. A TRI captures both changes in stock prices and dividends. In the last 1 year, the index has del...