5 Top-Performing Small Cap Mutual Funds of 2024 in India Over the Last 5 Years

And despite a stellar rally in recent years, the small-cap investing mania seems to be unceasing. India's resilient economic growth, healthy corporate balance sheets, the steady rise of retail investors, and the sustained inflow of capital into the broader market through the SIP route of mutual funds are some of the biggest reasons for the outperformance of small-cap stocks in recent years.

Besides, sectors that have experienced notable performance, such as construction, engineering, and defence, have a greater representation of small and mid-cap companies, contributing to the overall outperformance of the segment.

Not surprisingly, Small Cap Funds have shown strong performance over the last few years. Barring one scheme, all 19 scheme in the Small Cap Fund category that have a track record of 5 years or more generated returns at a CAGR of over 20% in the last five years, on a rolling return basis. Of these 11 schemes generated returns of more than 25% CAGR, with the top performing scheme generated returns of 35.3%.

In this article, explore the top-performing Small Cap Mutual Funds of 2024 in India in the last 5 years.

Top-performing Small Cap Fund of 2024 #1: Quant Small Cap Fund

Launched in October 1996, Quant Small Cap Fund is an actively managed Small Cap Fund that has recorded extraordinary performance in the last few years and has found a place among the top performers in the category across time frames. The fund follows an active investment approach whereby it constantly hunts for attractive opportunities, resulting in higher portfolio turnover compared to peers. Its higher exposure to certain sectors such as Financials, Engineering, Infrastructure, and Consumption proved to be extremely rewarding over the last couple of years. Though the volatility registered by the fund is higher than the benchmark and many of its peers, the remarkable returns generated by the fund have helped it score high on risk-reward parameters. In the last five years Quant Small Cap Fund has registered growth at a CAGR of 35.3% on a rolling returns basis, which is the highest in the category.

The fund's top holdings are currently dominated by large-cap names such as Reliance Industries, HDFC Bank, and JIO Financial Services, followed by small-cap names such as Aegis Logistics and Bikaji Foods International. Sector-wise, the fund's portfolio is inclined towards Banking & Finance, followed by Petroleum, Healthcare, Logistics, Engineering, and Infrastructure, among others.

Top-performing Small Cap Fund of 2024 #2: Bank of India Small Cap Fund

Launched in December 2018, BOI Small Cap Fund aims to capitalise on opportunities in under researched and emerging businesses. It focuses on investing in stocks with high profit growth potential, high ROE, and are run by competent management. The fund does not hesitate to churn a portion of its portfolio to benefit from the available opportunities. BOI Small Cap Fund registered category topping performance during the 2020 market crash and also outpaced most of its peers in the ongoing bull phase. This has enabled it to generate substantial alpha over the benchmark and the category average. In the last five years BOI Small Cap Fund has delivered a CAGR of 33.6% compared to 22.2% registered by its benchmark Nifty Smallcap 250 – TRI.

The fund's top holdings comprise small-cap names such as Amara Raja Energy & Mobility, Jyoti CNC Automation, AMI Organics, Titagarh Railsystems, and Vijaya Diagnostics Centre. Its sector allocation is dominated by Auto & Ancillaries, Healthcare, Engineering, and Banking & Finance.

Top-performing Small Cap Fund of 2024 #3: Edelweiss Small Cap Fund

Launched in February 2019, Edelweiss Small Cap Fund endeavours to identify quality and liquid stocks within the small cap space. It aims to invest in businesses that have the potential to grow earnings exponentially as well as those that are likely to benefit from the economic growth. The fund holds most of its stocks with a long-term view while remaining agnostic to value or growth style of investing, and has thus recorded low portfolio churn. Edelweiss Small Cap Fund stood strong during the 2020 market crash and also outpaced many of its peers in the ongoing bull phase. This has enabled it to generate substantial alpha over the benchmark and the category average. In the last five years Edelweiss Small Cap Fund’s NAV grew at 30.9% CAGR.

Its core holdings comprise a mix of mid-cap and small-cap names such as KEI Industries, UNO Minda, JB Chemicals & Pharmaceuticals, Kirloskar Pneumatic Company, and Brigade Enterprises. In terms of sectors, the fund has shown preference towards Banking & Finance, Engineering, Healthcare, Auto & Ancillaries, and Infotech, among others.

Top-performing Small Cap Fund of 2024 #4: Canara Rob Small Cap Fund

Launched in February 2019, Canara Robeco Small Cap Fund is a well-managed Small Cap Fund that has built a superior track record within a short time span. It aims to invest in undervalued businesses with consistent earnings, strong business models, and competent management. While identifying attractive opportunities, Canara Robeco Small Cap Fund does not comprise on safety and lays a high emphasis on risk management. Despite having a short-term track record of little over five years, the fund has shown great potential and has clearly outpaced the benchmark and many of its peers. The fund not only limited the downside risk during the market crash of 2020 but also stood among the top performers in the category in the ensuing bull phase. This has helped it to generate substantial alpha over the benchmark and its prominent peers. In the last five years Canara Robeco Small Cap Fund registered returns at a CAGR of 30.3% on a rolling returns basis.

The fund's top equity allocation is in KEI Industries, Kaynes Technology India, Bharat Electronics, Multi Commodity Exchange of India, and Century Textiles & Industries. Its portfolio is inclined towards Banking & Finance, Healthcare, Engineering, and Auto & Ancillaries sector.

Top-performing Small Cap Fund of 2024 #5: Tata Small Cap Fund

Launched in November 2018, Tata Small Cap Fund aims to invest in stocks of companies that are in growth mode and have the potential to make it big in the market. Tata Small Cap Fund looks to identify growth-oriented sound stocks available at reasonable valuations. The fund invests over 90% of its assets in stocks of small-sized companies as compared to the category average of 75%. While this may pose liquidity risk typically associated with stocks of small-sized companies, the fund's focus on diversification in fundamentally sound stocks across various sectors has enabled it to reward investors. Tata Small Cap Fund efficiently limited the downside risk during the market crash of 2020, while it also stands as a category topper in the ongoing bull phase. In the last five years, Tata Small Cap Fund generated gains of 29.3% CAGR on a rolling return basis.

Unlike most of its peers Tata Small Cap Fund holds a pure small-cap biased portfolio, Tata Small Cap Fund has avoided investing in large-cap and mid-cap stocks. Its top holdings included BASF India, Kirloskar Pneumatic Company, Quess Corp, IDFC, and Elantas Beck India. Its sector allocation comprises Chemicals, Engineering, Healthcare, Finance, and Auto & Ancillaries, among others.

To conclude:

The rising valuations and warning of froth building in the small-cap segment by the SEBI has not deterred investors. Notably, the BSE Smallcap to Sensex 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.

It is important to note due to the small-cap index at all-time high and high valuations, the possibility of earning massive returns in the near future may be limited. Due to the high downside risk and volatility associated with small-cap stocks, 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 out about the risks associated with Small Cap Fund investing:

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.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.