Small cap funds recover slightly following market gains last week; check returns of top funds

Over the past week, the stock market experienced its highest weekly gain in four years since February 2021, with a 4.26% increase. This marked a five-day winning streak of closing in the green, showing a strong recovery over the last six days and nearing the reversal of year-to-date (YTD) losses.

Smallcap and midcap stocks are typically seen as riskier investments compared to largecap stocks, but they are also known for their potential to deliver higher returns. However, market analysts have noted that smallcap and midcap stocks in India are currently experiencing significant overvaluation due to the market surge in 2023.

Amid this market rebound, numerous mid-cap and small-cap mutual funds have demonstrated impressive gains, with five funds achieving returns of over 8% in the last week. 

Top gainers in last week

Bank of India Small-Cap Fund

The Bank of India Small-Cap Fund achieved a 9.53% return last week, capitalizing on the recent market surge that recorded the highest weekly gains in four years. As of March 21, 2025, the Net Asset Value (NAV) of the fund was Rs 47.34, with total assets amounting to Rs 1,389.85 crore as of February 28, 2025, and an expense ratio of 0.54%. Since its inception, the fund has delivered a remarkable Compounded Annual Growth Rate (CAGR) of 28.3%, surpassing its benchmark return of 15.96%. Noteworthy holdings in the fund's portfolio include Lloyds Metals and Energy Limited (3.12%), Ami Organics Limited (2.96%), and Vijaya Diagnostic Centre Limited (2.72%).

LIC Small Cap fund

The LIC Small Cap fund saw a return of 13.02% till March 24, 2025. As of March 24, 2025, the Net Asset Value (NAV) of the fund was Rs 31.81. LIC MF Small Cap Fund Direct - Growth holds assets worth Rs 434 crores as of December 31, 2024. The fund has an expense ratio of 0.97%, which is comparatively higher than similar Small Cap funds. Over the past year, LIC MF Small Cap Fund Direct - Growth has recorded a return of 17.48%. Since its inception, the fund has provided an average annual return of 16.08%. Investors in this fund have seen their investments double every 4 years. 

The fund's top 5 holdings consist of JTL Industries Ltd, Housing & Urban Development Corporation Ltd., International Gemmological Institute (India) Ltd., Sanathan Textiles Ltd., and Concord Enviro Systems Ltd.

ITI Small-Cap Fund

The ITI Small-Cap Fund saw a return of 8.46% last week, with a total asset size of Rs 2,010.56 crore as of February 28, 2025. The fund maintains an expense ratio of 0.56%. The latest NAV, recorded on March 21, 2025, was Rs 28.3844. Since inception, the fund has delivered a CAGR of 22.73%, outperforming its benchmark return of 15.96%. The portfolio includes holdings in PG Electroplast Limited (3.62%), AMI Organics Limited (2.57%), and MCX India Limited (2.03%). With a minimum investment requirement of Rs 5,000 and a 1% exit load for redemptions within 12 months, the fund is an open-ended scheme for small-cap investors.

Invesco India Small-Cap Fund

The Invesco India Small-Cap Fund experienced an increase of 8.18% during the previous week, benefiting from the market's recent rally. As of February 28, 2025, the fund's total assets amount to Rs 5,311.92 crore, with a Total Expense Ratio (TER) of 0.41%. The Net Asset Value (NAV) was recorded at Rs 40.72 as of March 21, 2025. Since its inception, the fund has achieved a Compound Annual Growth Rate (CAGR) of 24.42%, outperforming its benchmark's 15.84%. Notable holdings include MCX India Limited (3.8%), Century Textiles and Industries (3.62%), and 360 One WAM Limited (2.77%).

Union Small Cap Fund

The Union Small Cap Fund saw an 8.07% return last week, benefiting from the market's gains. As of February 28, 2025, the fund had total assets of Rs 1,312.64 crore, with a turnover ratio of 140% and a TER of 1.07%. Investors will incur a 1% exit load if redeemed within 15 days. The NAV was Rs 47.68 on March 21, 2025, showing a 1.61% increase. Since inception, the fund has maintained a CAGR of 15.55%, closely aligning with its benchmark return of 15.96%. Key holdings include KEI Industries (3.25%), Eureka Forbes (3.1%), and JB Chemicals & Pharmaceuticals (3.08%), reflecting a diversified small-cap portfolio.

Small-cap funds over the years

​Over the past five years, small-cap mutual funds have delivered impressive returns, outperforming many other investment categories. Leading the pack is the Quant Small Cap Fund, which transformed a Rs 5 lakh investment into approximately Rs 27.24 lakh, boasting an annualized return of 40.39%. ​

Other notable performers include the Nippon India Small Cap Fund and the Bank of India Small Cap Fund, with annualized returns of 30.05% and 29.5%, respectively. ​

Here's a snapshot of the top-performing small-cap mutual funds over the last five years:​

Investing in Small-Cap Funds: Opportunities and Risks

Small-cap mutual funds invest predominantly in companies ranked 251 and beyond in terms of market capitalization. These firms, such as Hawkins Cookers and Sula Vineyards, are often in their growth phases, presenting significant potential for appreciation. ​

Opportunities

High Growth Potential: Investing in emerging companies can lead to substantial gains as these businesses expand and capture market share.​

Market Volatility: Small-cap stocks are more susceptible to market fluctuations, leading to higher price volatility.​

Liquidity Concerns: Due to lower trading volumes, exiting positions in small-cap stocks can be challenging during market downturns.​

Business Risks: Smaller companies may have limited resources, making them more vulnerable to economic shifts and operational challenges.​

Investors should assess their risk tolerance and investment horizon before allocating funds to small-cap mutual funds. A long-term perspective is often recommended to navigate the inherent volatility and capitalize on potential growth.

Disclaimer: Business Today provides market and personal news for informational purposes only and should not be construed as investment advice. All mutual fund investments are subject to market risks. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.