Investing in small cap mutual funds can offer high growth potential for investors who are ready to take on higher risk. Small cap funds invest mainly in smaller companies that have the potential to become the big companies of tomorrow. Over the years, these funds have delivered strong long-term returns, though they can be more volatile in the short term.
Let’s discuss the leading small cap mutual funds in India along with their 1-year, 3-year, and 5-year returns.
Small cap mutual funds are equity-oriented schemes that invest primarily in companies ranked beyond the top 250 listed stocks in terms of market capitalization. These companies usually have strong growth potential, but their stock prices can fluctuate significantly. Therefore, these funds are best suited for long-term investors with a higher risk tolerance.
While small cap funds may underperform during volatile or bearish market phases, they tend to outperform during bullish market periods due to their ability to capture rapid growth in smaller companies. Evaluating the funds based on 3-year and 5-year returns gives a clearer picture of their performance consistency.
1-Year Return: -1.27%
3-Year Return: 31.78%
5-Year Return: 32.49%
Bandhan Small Cap Fund stands out as one of the top-performing funds in the small cap category. Despite a small negative return of -1.27% in the past year, it has delivered an impressive 31.78% annualized return over three years and 32.49% over five years.
These figures highlight the fund’s ability to perform strongly over the long term. The minor short-term dip is not unusual for small cap funds, as they are sensitive to market corrections. The fund’s management has shown the ability to pick quality small cap stocks that can sustain growth even during market volatility.
1-Year Return: -0.84%
3-Year Return: 28.44%
5-Year Return: 27.04%
ITI Small Cap Fund has also shown strong long-term performance, with 28.44% returns over three years and 27.04% over five years. The fund recorded a slight decline of -0.84% in one year, which is relatively better compared to other small cap funds that saw sharper short-term corrections.
Its stable long-term record indicates sound stock selection and risk management. For investors seeking consistent growth with controlled volatility in the small cap segment, this fund has proven to be a competitive option.
1-Year Return: 1.06%
3-Year Return: 27.75%
5-Year Return: 32.72%
Among the funds listed, Invesco India Smallcap Fund has managed to maintain positive 1-year returns of 1.06%, even during a challenging period for small cap stocks. Over the last three and five years, it has generated 27.75% and 32.72% returns, respectively.
This indicates the fund’s strength in identifying growth-oriented small companies capable of performing even in uncertain market conditions. The consistent performance over five years suggests experienced fund management and a well-diversified portfolio.
1-Year Return: -5.25%
3-Year Return: 25.86%
5-Year Return: 35.73%
Quant Small Cap Fund has been known for its dynamic investment strategy. Although the 1-year return is negative at -5.25%, the fund has delivered one of the highest 5-year returns at 35.73%, along with a strong 3-year performance of 25.86%.
This reflects its ability to capitalize on long-term growth opportunities. The short-term dip might be due to higher volatility, but over time, the fund has significantly rewarded investors who stayed invested for the long term.
1-Year Return: -5.60%
3-Year Return: 24.07%
5-Year Return: 33.91%
The Nippon India Small Cap Fund has been a consistent performer in the small cap space for several years. Despite a decline of -5.60% over one year, it continues to show strong multi-year returns with 24.07% over three years and 33.91% over five years.
This fund has often been among the largest and most popular small cap funds in India. Its diversified portfolio and long-term focus have helped it maintain strong growth across different market cycles.
1-Year Return: 0.81%
3-Year Return: 23.86%
5-Year Return: 31.21%
HDFC Small Cap Fund remains one of the most trusted names among small cap funds. It has shown positive returns of 0.81% over one year, which is notable in a year where many small cap funds reported losses. Over three and five years, the fund has generated 23.86% and 31.21%, respectively.
Its track record of managing volatility effectively and selecting fundamentally strong small companies makes it suitable for long-term investors seeking stability along with high growth potential.
1-Year Return: -7.51%
3-Year Return: 22.86%
5-Year Return: 30.05%
Franklin India Small Cap Fund has delivered a 5-year return of 30.05% and 3-year return of 22.86%, showcasing consistent long-term performance. The short-term decline of -7.51% in one year can be attributed to recent market corrections in the small cap space.
Despite short-term fluctuations, the fund has maintained strong fundamentals and a disciplined investment approach focused on growth-driven companies.
1-Year Return: -1.49%
3-Year Return: 22.22%
5-Year Return: 28.87%
Sundaram Small Cap Fund has displayed resilience with 22.22% returns over three years and 28.87% over five years. The one-year decline of -1.49% is relatively small compared to other funds in the segment.
This fund has balanced risk and reward effectively, focusing on quality small cap stocks with strong earnings potential. It is suitable for investors seeking stable yet high-growth exposure within the small cap space.
1-Year Return: -3.42%
3-Year Return: 22.10%
5-Year Return: 30.79%
Edelweiss Small Cap Fund has also shown steady performance over the long term. The fund’s 5-year return of 30.79% and 3-year return of 22.10% indicate healthy growth. The one-year performance of -3.42% suggests a minor short-term setback, which is not unusual for small cap funds.
The fund’s long-term strategy and selection of promising small companies have contributed to its solid track record over time.
Among all the funds listed, Bandhan Small Cap Fund and Quant Small Cap Fund stand out for their exceptional 5-year returns—both above 35%. Invesco India Smallcap Fund also shows impressive consistency, delivering over 32% returns over five years and maintaining positive returns in the past year.
HDFC Small Cap Fund and Nippon India Small Cap Fund have proven to be reliable choices with strong performance across multiple time horizons. Their balanced approach and diversified holdings make them favorites for investors looking for steady long-term growth.
Small cap mutual funds remain a powerful wealth-building option for investors with a long-term horizon. Though short-term volatility may affect their 1-year performance, the 3-year and 5-year returns clearly demonstrate their potential to outperform other equity categories over time.
Among the funds highlighted, Bandhan, Invesco, Quant, and Nippon India have shown strong long-term performance. These funds reflect the potential of small cap investing in India’s growing economy, where emerging companies continue to create new opportunities for investors seeking growth beyond large caps.
For anyone exploring equity investments with a high growth objective, these small cap mutual funds represent some of the best-performing options in India today.