The recent rally has lifted returns across the small-cap universe, although performance has varied considerably between schemes. Some funds have gained more than 30% over the six-month period, while their longer-term performance also shows a wide gap between the better and weaker performers.
Bank of India Small Cap leads six-month performance
Bank of India Small Cap Fund has been among the strongest performers over the six-month period, with a return of around 38.7% in the regular plan based on the latest available fund-performance data.
TRUSTMF Small Cap Fund followed with a return of around 34.6%, while Motilal Oswal Small Cap Fund delivered about 32.7%.
JM Small Cap Fund gained around 31.3%, while Helios Small Cap Fund and Groww Small Cap Fund delivered around 30.6% and 29.7%, respectively.
These figures are six-month returns and should not be confused with a simple comparison of NAVs on March 31 and September 7. The two methods can produce different numbers because of differences in the exact return period and calculation methodology.
Small-cap rally has been broad, but not uniform
The recent recovery comes after a period of weakness in small-cap stocks.
Small-cap companies had faced pressure amid concerns over valuations and the sustainability of earnings growth. The subsequent improvement in market sentiment and continued domestic liquidity have helped the segment recover.
However, the gains have not been evenly distributed. Differences in portfolio construction, stock selection and sector exposure have resulted in significant variations in returns across schemes.
This is also visible when longer periods are considered.
Bank of India also scores well over five years
Bank of India Small Cap Fund had the highest five-year CAGR among the funds listed, at around 21%. Invesco India Small Cap followed at 20.82%, while Bandhan Small Cap delivered 20.43%.
The three-year rankings look different. ITI Small Cap had the highest three-year CAGR at 25.67%, followed by Bandhan Small Cap at 25.2%. This shows how fund rankings can change depending on the investment horizon.
| Fund | 3-year CAGR | 5-year CAGR |
| Bank of India Small Cap | 22.30% | 21.00% |
| Invesco India Small Cap | 23.52% | 20.82% |
| Bandhan Small Cap | 25.20% | 20.43% |
| Quant Small Cap | 17.68% | 20.20% |
| ITI Small Cap | 25.67% | 19.64% |
This difference highlights why fund rankings can change depending on the period being considered.
Not every established fund has kept pace
The dispersion becomes more evident at the other end of the performance table.
Kotak Small Cap Fund had a five-year CAGR of around 13.52%, while PGIM India Small Cap Fund delivered 14.5%.
Aditya Birla Sun Life Small Cap Fund recorded a five-year CAGR of 14.6%, followed by ICICI Prudential Small Cap Fund at 14.9% and SBI Small Cap Fund at 15.09%.
Kotak Small Cap Fund’s three-year CAGR was 12.07%, while PGIM India Small Cap Fund delivered 17.08% over the same period.
The difference between the five-year CAGR of Bank of India Small Cap Fund and Kotak Small Cap Fund is therefore significant. But it does not by itself establish that one fund will outperform the other in the future.
Portfolio differences matter
One reason for the divergence is that small-cap funds can have very different portfolios.
Bank of India Small Cap Fund’s portfolio, for instance, has its largest sector exposure to consumer cyclicals at 22%, followed by industrials at 18.1% and financial services at 14.27%.
Its portfolio includes 98 stocks, with Sky Gold and Diamonds, City Union Bank, Wockhardt, Quality Power and CAMS among its largest holdings in the data available.
Kotak Small Cap Fund, meanwhile, has its largest sector exposure to healthcare at 24.1%, followed by industrials at 22% and consumer cyclicals at 19.45%.
Its major holdings include Aster DM, Vijaya Diagnostic, Sansera Engineering, KIMS and Century Plyboards.
Such differences mean that two funds in the same category can respond very differently to changes in market leadership.
Newer funds need a longer track record
Some of the funds that have delivered strong recent returns are relatively new.
Groww Small Cap Fund, for example, does not have the same length of track record as schemes that have operated through multiple market cycles.
This is important when evaluating performance. A strong six-month return can reflect favourable market conditions or exposure to stocks that happened to lead a particular phase of the recovery.
Investors need a much longer period to assess whether a fund’s investment process has consistently worked across different market environments.
Should investors chase the rally?
The sharp six-month gains may make top-performing small-cap funds look attractive, but past performance alone is not a sufficient reason to invest.
Small-cap funds can be significantly more volatile than large-cap-oriented schemes. Their returns can also change rapidly when liquidity conditions or investor risk appetite deteriorate.
Investors should therefore look at three-year and five-year performance alongside recent returns, rather than selecting a fund solely because it has topped the latest six-month ranking.
Other factors such as benchmark performance, consistency, portfolio concentration, expense ratio, fund-manager changes and the underlying quality of the portfolio also matter.