Mutual fund schemes have become popular among investors in the last few years due to higher returns compared to traditional investment instruments. Mutual funds offer market-linked returns and enormous
flexibility to investors from income groups. Among the wide range of schemes, small-cap mutual funds have given significant returns to investors over the last five years, despite the bouts of market volatility.
Small-cap funds are the mutual fund schemes that invest at least 65% of their total assets in equity and equity-related securities of small-cap companies, as per the classification by the market regulator, the SEBI (Securities and Exchange Board of India). These schemes are generally preferred by investors looking for exposure to equity assets with high growth potential. The small-cap funds come with the potential to outperform mid- and large-cap funds in an upward market. However, these funds could be volatile and risky as they invest the majority of their assets in small companies.
Investors can identify the best mutual fund schemes by evaluating returns over a period and comparing them with returns of other schemes in the same category. Past returns may not be a guarantee of steady growth due to future uncertainties and market fluctuations. However, in mutual fund schemes, past returns help to assess the performance and the future growth potential.
Before finalising to invest in a mutual fund scheme, it’s advisable to evaluate your financial goals, risk appetite and investment horizon.
Here are the top 10 small-cap mutual funds that have delivered an annualised return of 30-35 per cent in the last five years, according to the Association of Mutual Funds in India (AMFI).
| Small Cap Fund | 5-Year Annualised Return (In %) |
| Nippon India Small Cap Fund | 34.71 |
| Bandhan Small Cap Fund | 32.98 |
| HSBC Small Cap Fund | 32.14 |
| HDFC Small Cap Fund | 31.90 |
| Invesco India Small Cap Fund | 31.87 |
| Franklin India Small Cap Fund | 31.61 |
| Tata Small Cap Fund | 31.59 |
| BOI Small Cap Fund | 30.69 |
| Edelweiss Small Cap Fund | 30.54 |
| ICICI P Small Cap Fund | 30.28 |
As the table indicates, the Nippon India Small Cap Fund has become the best-performing fund in the category with an annualised return of 34.71 percent. Bandhan Small Cap Fund (32.98) and HSBC Small Cap Fund (32.14) have become the second and third best-performing small-cap funds, respectively, over the last five years.
BOI Small Cap Fund (30.69), Edelweiss Small Cap Fund (30.54), Franklin India Small Cap Fund (31.61), HDFC Small Cap Fund (31.9), ICICI P Small Cap Fund (30.28), Invesco India Small Cap Fund (31.87) and Tata Small Cap Fund (31.59) are some of the other small-cap schemes that have delivered annualised returns above 30 per cent over the last five-year period.
However, as suggested by market experts, investors must remain cautious before investing in a small-cap fund based on its historical returns. It will be a prudent step to evaluate the future growth potential of a small-cap scheme with respect to current economic and market conditions.
