4 small cap funds offer over 40% in three years

Small cap mutual funds are hogging the limelight these days. These schemes have offered very high returns to investors in the last few years. It seems, these schemes are offering high double-digit returns to investors even in the short period. ETMutualFunds did some number crunching and found out that four small cap schemes have offered more than 40% in three years.

Quant Small Cap Fund, the topper in the category, offered more than 45%. The scheme gave 45.46% in three years. Nippon India Small Cap Fund offered 42.91% in the three-year horizon. HSBC Small Cap Fund and HDFC Small Cap Fund gave 41.11% and 40.16% respectively.

There were around 21 schemes in the small cap category that have completed three years of existence. The small cap category has offered an average return of 35.78% in the three-year period. Around 16 small cap schemes gave returns ranging 30-39% in the same time period. ITI Small Cap Fund offered the lowest return of around 24.94%.


Nippon India Small Cap Fund, the largest scheme in the small cap category based on assets managed, offered 42.91%, against 35.87% by the benchmark (Nifty Smallcap 250 - TRI). The scheme manages assets worth Rs 36,539.54 crore.


HDFC Small Cap Fund, the second largest scheme in the small cap category based on assets managed, offered 40.16%, against 36.03% by the benchmark (S&P BSE 250 Small Cap - TRI). The scheme manages assets of Rs 22,560.05 crore.

HSBC Small Cap Fund that manages assets of more than Rs 10,000 crore also managed to beat its benchmark (Nifty Smallcap 250 - TRI). The benchmark gave 35.87% in the three-year period.

We considered all the small cap schemes that have been in the market for three years for the study. We considered regular and growth options.

Note, the above exercise is not a recommendation. This exercise was just to find out how many small cap funds have offered more than 40% return in the three-year horizon.

One should not make investment or redemption decisions based on the above exercise. One should always consider goal, investment horizon, and risk appetite before making investment decisions.

If you are looking for recommendations, see: Best small cap mutual funds to invest in 2023

Small cap schemes are always considered risky. However, they also have the potential to deliver very high returns over a long period of time. The trouble is these schemes are also notorious for their very long bear phases. When the market gets into a lean phase small cap segments lose heavily as investors look for safer investment options. Small cap companies also have corporate governance issues.

This is why ETMutualFunds do not recommend small cap schemes to new and inexperienced investors. We always tell investors to gain experience and knowledge before investing in small cap schemes. We believe that only investors with a very high risk appetite and stomach for volatility should invest in small cap schemes. They also should have a long investment horizon of, say, seven to 10 years.