Best Small Cap Index Funds

Investors can take advantage of the growth potential of smaller U.S. companies by investing in small-cap index funds. These companies often don’t reach mainstream market capitalization until later. These funds focus on companies with smaller market values, usually less than $2 billion, and give investors a wide range of exposure to industries and sectors that big-cap indexes often miss. Small-cap funds are a great way for long-term investors and people who want to diversify their portfolios beyond blue-chip stocks to do so.

We’ll show you eight of the best small-cap index funds that will be available in 2025. We look at each fund’s expense ratio, the index it tracks, its performance characteristics, and its unique benefits.

1. Vanguard Small-Cap Index Fund (VSMAX)

• Index: CRSP US Small Cap Index
• Expense Ratio: 0.05%

VSMAX gives you a full view of the U.S. small-cap equity market by combining growth and value stocks in a variety of ways. This fund has thousands of small-cap companies in it and is great for investors who want to keep an eye on the market for a long time at a low cost. Its very low expense ratio helps compound growth over time.

Pros

• Broad diversification
• Strong long-term performance history
• Backed by Vanguard’s investor-friendly structure

2. iShares Russell 2000 ETF (IWM)

• Index: Russell 2000 Index
• Expense Ratio: 0.19%

IWM is one of the most popular small-cap ETFs, giving you real-time access to about 2,000 companies. This fund is great for traders and short-term tactical investors because it has a lot of liquidity and tight bid-ask spreads.

Pros

• High trading volume and liquidity
• Transparent index methodology
• Access to growth across various sectors

3. Fidelity Small Cap Index Fund (FSSNX)

• Index: Dow Jones U.S. Small-Cap Total Stock Market Index
• Expense Ratio: 0.02%

FSSNX is one of the best small-cap index funds in terms of cost. It tracks indexes accurately and is good for passive investors who want to grow their money over time with little cost.

Pros

• Among the lowest expense ratios in the industry
• Sector diversification across the small-cap spectrum
• Stable tracking of the underlying index

4. Schwab U.S. Small-Cap ETF (SCHA)

• Index: Dow Jones U.S. Small-Cap Total Stock Market Index
• Expense Ratio: 0.04%

SCHA gives you quick and cheap access to hundreds of small-cap stocks in the U.S. This ETF is good for both new and experienced investors because Schwab is open about its fees and low fees.

Pros

• Low cost for ETF exposure
• Strong liquidity and ease of access
• Broad sector and industry coverage

5. T. Rowe Price Small-Cap Index Fund (OTCFX)

• Index: Russell 2000 Index
• Expense Ratio: 0.22%

OTCFX doesn’t do much, but it does get help from a well-known fund management company. It gives investors access to small-cap growth and value stocks and is good for long-term investors who want to keep costs down while also managing quality.

Pros

• Managed by a reputable asset manager
• Stable index tracking with some flexibility
• Suitable for retirement portfolios

6. SPDR S&P SmallCap 600 ETF (SLY)

• Index: S&P SmallCap 600 Index
• Expense Ratio: 0.15%

SLY includes small-cap companies that meet certain standards for profitability and liquidity. Compared to other small-cap benchmarks, this quality screening lowers the risk of losing money.

Pros

• Screens for financial health and stability
• Historically stronger returns vs. broader small-cap indexes
• Lower volatility within the small-cap universe

Top Small Cap Index Funds Summary

Conclusion

Investing in small-cap index funds is a good way to get more growth potential and spread your risk beyond large-cap stocks. Each of the funds on this list has its own pros and cons when it comes to cost, index methodology, and trading features.

FSSNX and VSMAX are two funds that stand out for investors who want to save money. Traders and people who need cash quickly might like IWM, while long-term investors who want to filter out low-quality stocks might like SLY or OTCFX better. The best small-cap fund for an investor will depend on their goals, how much risk they are willing to take, and how long they plan to hold the fund.

Adding small-cap stocks to a well-rounded portfolio can make it better. But you need to do your homework, especially since this asset class is so volatile. Looking at past performance, learning about the underlying index, and thinking about cost structures can all have a big impact on long-term results.

Frequently Asked Questions

What is a small-cap index fund?

A small-cap index fund is a type of mutual fund or ETF that follows a certain index of small-cap companies, which are usually companies with market capitalizations between $300 million and $2 billion.

Are small-cap funds riskier than large-cap funds?

Yes, small-cap funds are more likely to change quickly, but they also have a better chance of growing. They might be more sensitive to changes in the market, but they can do better when the economy is growing.

What’s the difference between the Russell 2000 and S&P SmallCap 600?

There are about 2,000 small-cap companies in the Russell 2000, and they don’t have to go through a lot of screening. The S&P SmallCap 600 uses financial health criteria, which can make it less volatile and more focused on quality.

How much should I invest in small-cap funds?

Depending on your risk profile, investment goals, and time horizon, a typical diversified portfolio might have 5% to 15% in small-cap funds.

Are small-cap index funds good for beginners?

Yes, especially if you use a low-cost, diversified fund like VSMAX or FSSNX. You don’t have to pick individual stocks for these funds, which makes them easy to manage.

Written by Aiko Gin Updated August 9, 2025 by Albert Fang