Top-Performing Small-Cap Mutual Funds in the Last 1 Year: Do You Own Any?

In the last year, the small-cap segment has faced significant headwinds. Unlike the previous rallies, the S&P BSE SmallCap index delivered negative returns of approximately -4.79%. Consequently, the euphoria of “double-digit” gains has cooled, with most small-cap funds delivering flat or negative returns for the one-year period. However, active management played a crucial role, as many funds managed to contain the downside better than the broader index.

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In the last one-year, Indian large-cap indices have actually outperformed the broader mid and small-cap segments, a reversal from previous trends. S&P BSE Sensex registered returns of 9.19% in the last year, while the S&P BSE MidCap index posted modest gains of 4.67%. The S&P BSE SmallCap index significantly lagged, delivering -4.79% returns.

Unlike the previous period where Sensex returns barely matched savings rates, this year the S&P BSE Sensex (9.59%) comfortably beat the interest rate offered by savings bank accounts (typically 6%–7%).

Having said that, when it comes to small-cap mutual funds, the focus has shifted from “generating alpha” to “protecting capital.” While the benchmark (NIFTY Smallcap 250 TRI) fell by approximately -6.2%, several top-tier small-cap funds managed to restrict losses or deliver marginal positive returns (for example, Bandhan Small Cap Fund at 0.1% to -1.9%), thereby outperforming the category average, which saw a correction of about 6.3%.

The recent underperformance highlights the inherent volatility of the small-cap segment. While the benchmark Nifty Small-Cap 250 TRI corrected by around 4.84% in the last year, the category average saw a slightly deeper cut. However, historical data suggests that small-cap funds tend to bounce back strongly after periods of consolidation or correction.

Overview of Top Performing Small-Cap Funds in the Last One Year

Quantum Small Cap Fund

This fund seeks long-term capital appreciation by investing predominantly in small-cap stocks through a relatively concentrated, high-conviction portfolio. It remains a small fund with an AUM of about ₹171 crore and charges an expense ratio of 2.17%. It delivered a 1-year return of 5.24%, the highest among the funds listed for the period considered.

Sundaram Small Cap

Sundaram Small Cap aims to achieve capital growth by investing mainly in diversified small-cap companies with high growth potential, suitable for investors with a higher risk appetite. It manages a sizable corpus of around ₹3,451 crore with an expense ratio of 1.93% and delivered a modest but positive 1-year return of 1.13% for the regular growth plan.

ICICI Prudential Small Cap Fund

ICICI Prudential Small Cap Fund aims to generate capital appreciation by investing predominantly in equity and equity-related securities of small-cap stocks with a long-term investment horizon. The fund has an AUM of roughly ₹8,453 crore, charges about 1.79% as expense ratio, and posted a slightly negative 1-year return of −0.32% for the regular growth plan.

Bandhan Small Cap Fund

Bandhan Small Cap Fund focuses on building a diversified small-cap portfolio using a “quality-growth” style to capture long-term wealth creation from emerging businesses. It is one of the larger schemes in the category with an AUM of about ₹18,125 crore, an expense ratio of 1.63%, and a 1-year return of −0.89%.

HDFC Small Cap Fund

HDFC Small Cap Fund seeks long-term capital appreciation and income by investing predominantly in small-cap companies, with some allocation to mid-caps for diversification. It is the largest fund in this list with an AUM of around ₹38,009 crore, an expense ratio of 1.54%, and a 1-year return of −1.16% for the regular growth option.

PGIM India Small Cap Fund

PGIM India Small Cap Fund aims for long-term capital appreciation by investing mainly in equity and equity-related instruments of small-cap companies, often maintaining an aggressive equity allocation. It manages about ₹1,597 crore with an expense ratio of 2.07%, and the regular growth plan delivered a −1.16% return over the last year.

Axis Small Cap Fund

Axis Small Cap Fund’s mandate is to generate long-term capital appreciation from a diversified portfolio of primarily small-cap equities, following a quality-biased stock-picking approach. The fund has an AUM of approximately ₹26,838 crore, an expense ratio of 1.59%, and a 1-year return of −1.97% for the regular growth plan.

TRUSTMF Small Cap Fund

TRUSTMF Small Cap Fund is a relatively new scheme seeking long-term capital appreciation through investments in small-cap equities. The fund size is about ₹1,248 crore with a higher expense ratio of 2.10%, and it delivered a −2.01% return over one year for the regular growth option.

DSP Small Cap Fund

DSP Small Cap Fund aims to generate long-term capital growth from a portfolio largely composed of small-cap companies and has one of the longer track records in the category. It manages around ₹17,010 crore, charges about 1.70% as expense ratio, and delivered a −2.19% return over the last year.

Invesco India Small Cap Fund

Invesco India Small Cap Fund seeks long-term capital appreciation through a diversified portfolio of small-cap equities. The regular plan has an AUM of about ₹8,985 crore, an expense ratio of 1.71%, and a 1-year return of −2.55%, the lowest in this particular list.

Conclusion

Small-cap funds have had a weak year, and the real achievement for “top performers” was limiting losses rather than delivering high gains. While short-term performance has been muted, over a 3–5 year horizon small-cap funds continue to demonstrate strong wealth-creation potential.

Therefore, small-cap funds are best positioned as a high-risk, long-term satellite allocation within a diversified portfolio, ideally invested through SIPs and only for investors whose risk appetite can withstand periods of sharp volatility.