Highest Return Mutual Funds in the Last 10 Years – Small Cap Fund Category

August 21, 2024 Mutual Fund

The BSE Small-cap index has delivered gains of 27.9% so far in the current calendar year, outpacing the gains of 11.3% in BSE Sensex. The small-cap index had gained 47.5% in 2023.

Barring the brief blip in March 2024 when SEBI raised concerns about the valuations in the segment and asked mutual fund houses to conduct a stress test, the rally in small-cap stocks has been unstoppable.

India’s robust economic fundamentals, healthy corporate balance sheet, and the strong influx of new retail investors (especially via the SIP route of mutual funds), over the past few years have been among the key factors driving the rally in small-cap stocks.

Amid the stellar rally in the small-cap segment, Small Cap Fund has been the top-performing category among diversified equity mutual funds. In this article, explore the highest return mutual funds in the last 10 years from the Small Cap Fund category, selected based on SIP returns.

Highest Return Small Cap Fund in the Last 10 Years #1: Quant Small Cap Fund

Incepted in October 1996, Quant Small Cap Fund is a Small Cap Mutual Fund category that follows aggressive investment strategies to actively chase momentum-driven stocks. The fund was originally launched as a debt-oriented fund under which it invested predominantly in fixed-income and money market instruments. It was later categorised as a Small Cap Fund in 2018 after the Quant Group took over the sponsorship of the AMC from Escorts Mutual Fund. The fund has shown commendable performance under its current mandate and currently stands as the category topper across time frames.

Performance of Quant Small Cap Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory
Data as of August 19, 2024
Returns are XIRR in percentage
Monthly SIP of Rs 10,000 over a 10-year period in Direct plan – Growth option considered
(Source: ACE MF, data collated by PersonalFN) 

In the last 10 years, Quant Small Cap Fund grew at an XIRR of 29.4% compared to a growth of 21.4% in its benchmark Nifty Smallcap 250 – TRI. A monthly SIP of Rs 10,000 over a 10-year period (i.e. total investment of Rs 12,00,000) in the fund would now be valued at Rs 57,17,820.

Top holdings of Quant Small Cap Fund

Portfolio data as of July 31, 2024
(Source: ACE MF, data collated by PersonalFN) 

Quant Small Cap Fund usually holds a well-diversified portfolio of about 80-90 stocks. As of July 31, 2024, the fund held 82 stocks in its portfolio, with the top 10 stock holdings accounting for about 42% of its assets. Large-cap stocks such as Reliance Industries and Jio Financial Services currently form the fund’s top holdings followed by small-cap names such as Aegis Logistics, Aditya Birla Fashion and Retail, and HFCL among others. While Quant Small Cap Fund does not hesitate to hold unconventional bets, it has restriction allocation in each small cap stock to 5% or less.

Highest Return Small Cap Fund in the Last 10 Years #2: Nippon India Small Cap Fund

With a corpus of Rs 60,373 crore, Nippon India Small Cap Fund is currently the largest scheme in the Small Cap Fund category. Since its inception in September 2010, Nippon India Small Cap Fund has done well across market phases and built an impressive track record of superior performance. This has resulted in the scheme becoming popular among aggressive investors. The fund aims to identify small-sized companies with high-growth potential that are available at relatively attractive valuations. It avoids frequently churning its portfolio and holds many of its stocks with a long-term view.

Performance of Nippon India Small Cap Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory
Data as of August 19, 2024
Returns are XIRR in percentage
Monthly SIP of Rs 10,000 over a 10-year period in Direct plan – Growth option considered
(Source: ACE MF, data collated by PersonalFN) 

In the last 10 years, Nippon India Small Cap Fund grew at an XIRR of 27.9% compared to a growth of 21.4% in its benchmark Nifty Smallcap 250 – TRI. A monthly SIP of Rs 10,000 over a 10-year period (i.e. total investment of Rs 12,00,000) in the fund would now be valued at Rs 52,93,004.

Top holdings of Nippon India Small Cap Fund

Portfolio data as of July 31, 2024
(Source: ACE MF, data collated by PersonalFN) 

The fund tends to hold a large portfolio of over 150 stocks and has limited allocation in each stock to under 3% in order to reduce the high downside risk associated with small-sized companies. As of July 31, 2024, the fund held 209 stocks with the top 10 stocks accounting for just 14.8% of its assets. Its top holdings comprise a mix of large-cap, mid-cap, and small-cap names such as HDFC Bank, Kirloskar Brothers, Tube Investments of India, Voltamp Transformers, and Apar Industries.

Highest Return Small Cap Fund in the Last 10 Years #3: SBI Small Cap Fund

Launched in September 2009, SBI Small Cap Fund is the third-largest scheme in the Small Cap Fund category having an AUM of Rs 32,761 crore. The fund has well established itself in the Small Cap Fund category due to its superior long-term track record, wherein it stands among the top quartile performers. Following a blend of growth and value style of investing, SBI Small Cap Fund stands out for its ability to showcase superior performance across most time periods that has helped it generate significant alpha for its investors.

Performance of SBI Small Cap Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory
Data as of August 19, 2024
Returns are XIRR in percentage
Monthly SIP of Rs 10,000 over a 10-year period in Direct plan – Growth option considered
(Source: ACE MF, data collated by PersonalFN) 

In the last 10 years, SBI Small Cap Fund grew at an XIRR of 24.5% compared to a growth of 21.1% in its benchmark BSE 250 Smallcap – TRI. A monthly SIP of Rs 10,000 over a 10-year period (i.e. total investment of Rs 12,00,000) in the fund would now be valued at Rs 43,96,149.

Top holdings of SBI Small Cap Fund

Portfolio data as of July 31, 2024
(Source: ACE MF, data collated by PersonalFN) 

SBI Small Cap Fund usually holds a fairly-diversified portfolio of about 55 to 60 stocks. As of July 31, 2024, the fund held 57 stocks in its portfolio, reasonably diversified across sectors. It has a proven track record of timely identifying fundamentally sound stocks in the small-cap space that have turned into multi-baggers. Among its top holdings, the fund held exposure to Kalpataru Projects International, Blue Star, GE T&D India, Finolex Industries, and Whirlpool of India among others. The top 10 stocks in the fund’s portfolio collectively account for 29.5% of its assets.

Highest Return Small Cap Fund in the Last 10 Years #4: Kotak Small Cap Fund

Kotak Small Cap Fund is a Small Cap Fund that invests in small-sized companies having the potential to become future large-caps. Originally launched as a Mid Cap Fund in February 2005, the fund was repositioned and renamed as Kotak Small Cap Fund in June 2018 to align with SEBI’s mutual fund categorisation norms. The fund has proven its ability to timely identify and capture available opportunities in the small-cap space and create significant wealth for long-term investors in the fund. The fund’s focus on identifying quality stocks in the small-cap space and holding it with a long-term view has worked in its favour.

Performance of Kotak Small Cap Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory
Data as of August 19, 2024
Returns are XIRR in percentage
Monthly SIP of Rs 10,000 over a 10-year period in Direct plan – Growth option considered
(Source: ACE MF, data collated by PersonalFN) 

In the last 10 years, Kotak Small Cap Fund grew at an XIRR of 24.5% compared to a growth of 21.4% in its benchmark Nifty Smallcap 250 – TRI. A monthly SIP of Rs 10,000 over a 10-year period (i.e. total investment of Rs 12,00,000) in the fund would now be valued at Rs 43,93,005.

Top holdings of Kotak Small Cap Fund

Portfolio data as of July 31, 2024
(Source: ACE MF, data collated by PersonalFN) 

Kotak Small Cap Fund holds around 75-80 stocks in its portfolio spread across diverse sectors. As of July 31, 2024, Kotak Small Cap Fund held 77 stocks in its portfolio, with the top 10 stocks comprising 26.6% of its assets. It currently holds higher exposure to Techno Electric & Engineering Company, Cyient, Blue Star, Ratnamani Metals & Tubes, and, Carborundum Universal. Most of these stocks have been part of its portfolio for over two years.

Highest Return Small Cap Fund in the Last 10 Years #5: Axis Small Cap Fund

Launched in November 2013, Axis Small Cap Fund is among the popular schemes in the Small Cap Fund category having an AUM of Rs 23,399. The fund aims to generate alpha by maintaining a diversified portfolio of stocks across sectors. Axis Small Cap Fund focuses on investing in high-conviction, quality stocks available at attractive valuations and hold it with a long-term view until the full potential is derived. Even though Axis Small Cap Fund has witnessed a muted growth in its NAV over the last few years, trailing several peers in the category, its long-term performance continues to be remarkable.

Performance of Axis Small Cap Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory
Data as of August 19, 2024
Returns are XIRR in percentage
Monthly SIP of Rs 10,000 over a 10-year period in Direct plan – Growth option considered
(Source: ACE MF, data collated by PersonalFN) 

In the last 10 years, Axis Small Cap Fund grew at an XIRR of 24.4% compared to a growth of 21.4% in its benchmark Nifty Smallcap 250 – TRI. A monthly SIP of Rs 10,000 over a 10-year period (i.e. total investment of Rs 12,00,000) in the fund would now be valued at Rs 43,67,383.

Top holdings of Axis Small Cap Fund

Portfolio data as of July 31, 2024
(Source: ACE MF, data collated by PersonalFN) 

In the last one year, Axis Small Cap Fund held a large portfolio of 90-120 stocks. As of July 31, 2024, the fund held 122 stocks in its portfolio, with higher allocation to Blue Star, Brigade Enterprises, Cholamandalam Financial Holdings, Ahluwalia Contracts (India), and Birlasoft. The top 10 stocks in the portfolio collectively accounted for around 23.9% of its assets. Following a buy-and-hold approach, the fund usually records a low turnover ratio of under 20%, which highlights the fund manager’s conviction in each of its holdings.

Final thoughts

Small Cap Funds have registered a strong performance and have rewarded investors with impressive returns. However, it is important to note that superior performance in the past may not sustain in the future. Notably, the BSE Smallcap to Sensex ratio, a measure of valuation in the small-cap segment is currently at its peak, indicating overstretched valuations in pockets of the small-cap segment. Thus, the margin of safety has reduced compared to that of large caps.

[Read:  Small Cap Index Near an All-time High: Should You Rejoice or Worry?]

It is important to note due to the small-cap index trading near all-time high level and expensive valuations, the possibility of earning massive returns in the near future may be limited. Since the downside risk and volatility associated with small-cap stocks tends to be high, investors need to assess their holdings in Small Cap Funds to ensure that they do not go overboard with the investments.

Only aggressive investors having high risk appetite and an investment horizon of at least 5-7 years should consider adding Small Cap Funds to their portfolio, preferably via the SIP mode of investment.

Watch this video to find the risks associated with investments in Small Cap Funds:

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

This article first appeared on PersonalFN here