Analyzing Top & Bottom Small-Cap Mutual Funds in India

Stimulated by a large influx of retail investments, along with favorable conditions in the economy, the Indian mutual funds industry saw great growth, recording an asset growth of 12.2%, reaching an asset under management value of US$ 790.07 billion for FY26. In this flourishing environment, small-cap equity funds have become a key area of interest for high growth-oriented investors. But as the cycle changes and volatility continues in general indices like the NIFTY Smallcap 250 TRI, the performance difference among the schemes has become huge. Understanding the top and bottom small-cap equity funds would help us know about their investment approach in the changing environment.

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Top 3 Performers

1) Bank Of India Small Cap (Regular)

Bank of India Small Cap Fund was incorporated on December 12, 2018, completing 8 years. The investment objective of the scheme is to generate long-term capital appreciation by investing predominantly in equity and equity-related securities of small-cap companies. The fund has a total ₹3,307.18 Cr  AUM as on August 31st.

The fund has a minimum investment of ₹5,000 and is an open-ended mutual fund. It has delivered strong returns, with 1-year returns at 29.03%, 3-year returns at 19.98%, and 5-year returns at 18.36%, consistently outperforming its benchmark, the NIFTY Smallcap 250 TRI.

2) Union Small Cap (Regular)

Union Small Cap Fund was set up on June 10, 2014, thus making the number of years completed as 12. The objective of investment in the scheme includes achieving long-term capital appreciation through investments made in equity securities and equity-related securities, majorly comprising small-cap companies. Union Small Cap Fund has shown AUM of ₹2,667 crores as of August 31 and NAV of ₹59.20 as of September 30.

The scheme has the minimum investment of ₹1,000 and is open-ended in nature. It has provided excellent results over a period of time, wherein 1 year returns are 22.49%, 3 year returns are 15.65%, and 5 year returns are 15.84%. The fund is outperforming its benchmark index, which is NIFTY Smallcap 250 TRI, and holds second place.

3) ITI Small Cap (Regular)

ITI Small Cap Fund was launched on February 1, 2020, completing nearly 6 years of operations. The investment objective of the scheme is to generate capital appreciation by predominantly investing in equity and equity-related securities of small-cap companies. The fund recorded a total AUM of ₹3,602 crore as of August 31, with an NAV of ₹33.49 as of September 30.

With a minimum investment requirement of ₹5,000, this open-ended mutual fund has delivered strong performance, generating returns of 20.41% over 1 year, 21.74% over 3 years, and 16.35% over 5 years. It has consistently outperformed its benchmark, the NIFTY Smallcap 250 TRI, ranking third overall.

Top 3 worst performance

1) HDFC Small Cap (Regular)

Launched on April 4, 2008, HDFC Small Cap Fund has been operational for almost 18 years. The objective of the fund is to create capital growth and income by primarily investing in small-cap companies. The AUM of this scheme was ₹41,890 crore as of August 31, while the NAV of the fund stood at ₹136.07 as of September 30.

An open-ended mutual fund scheme with a minimum investment of ₹100, the HDFC Small Cap Fund has shown poor performance, offering a return of -2.57% in one year, 9.03% in three years, and 13.11% in five years. This fund has continuously underperformed the benchmark index of NIFTY Smallcap 250 TRI.

2) Tata Small Cap

The Tata Small Cap Fund was started on 2nd November 2018, and has now operated for almost eight years. The objective of the plan is to create long-term gains through the investments made in stocks and equity-linked instruments in the small-cap segment.

The total assets under management of the fund as of 31st August was ₹13,093 crore, with its net asset value as of 30th September being ₹39.38.This open-ended mutual fund requires a minimum investment amount of ₹5,000, and has been performing rather poorly, with returns of -0.11% in one year, 10.46% in three years, and 13.5% in 5 years.

3) ICICI Prudential Small Cap

Launched on October 1, 2007, the ICICI Prudential Small Cap Fund has completed nearly 19 years of operations. The scheme primarily aims to generate capital appreciation by investing predominantly in equity and equity-related securities of small-cap companies. As of August 31, the fund held a total AUM of ₹9,820 crore, with its NAV standing at ₹90.82 as of September 30.

As an open-ended mutual fund with a minimum investment of ₹5,000, the scheme has shown modest gains,posting 4.91% over 1 year, 10.3% over 3 years, and 12.69% over 5 years. Consequently, it continues to trail the NIFTY Smallcap 250 TRI benchmark.

Conclusion

The striking contrast noted in the performance of elite small-cap mutual funds with  the underperforming small-cap mutual funds reflects the high volatility of the category itself, even as the overall Indian mutual fund industry reaches new peaks. While some funds have succeeded in using their asset allocation and stock selection skills to outperform NIFTY Smallcap 250 TRI index, the poor performers point to the potential dangers of style-cyclicality and market corrections. Against the backdrop of the Indian asset management industry reaching all-time valuation levels, such conclusions carry added significance.