Small cap funds: Comparing Nippon India Small Cap vs HDFC Small Cap Fund vs Bandhan Small Cap Fund -- which one has given better returns  

Since the end of 2024 and the beginning of this year, small-cap and mid-cap mutual funds have experienced significant fluctuations. Small-cap funds have suffered significantly due to their exposure to small-cap stocks that are particularly vulnerable to market volatility. They get heavily impacted during market downturns. The small-cap mutual funds and the Nifty Smallcap 250 index have both dropped by nearly 18% from their peak in September. As a result, many experts advise reducing exposure to small-cap funds.

However, many experts feel that even after the recent market correction, the outlook for Indian small-cap shares remains positive in the long term. While it may take some time for a full recovery, careful selection of fundamentally sound companies can still present opportunities for patient, long-term investors.

It is important for investors to assess their holdings and ensure that their small-cap fund aligns with their risk tolerance. Not all small-cap funds are the same - some focus on high-risk, emerging companies while others prioritize stable, quality businesses.

"Many retail investors often enter small-cap funds when they are at their peak and start exiting when the market begins to correct. Small-cap investing requires significant experience and patience, as it’s one of the most volatile asset classes. Unfortunately, most investors tend to exit during market downturns, missing out on the potential long-term gains," said Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance.

Comparing different small-cap funds can help investors gauge the level of risk in their portfolio. 

So, we will be here’s a comparison of Nippon India Small Cap Fund, HDFC Small Cap Fund, and Bandhan Small Cap Fund across various parameters: 

The Nippon India Small Cap Fund has a strong track record in small-cap investing, with a focus on high-growth potential stocks and a diversified portfolio across various sectors. It is suitable for investors with a high-risk appetite and a long-term investment horizon.

The Bandhan Small Cap Fund, launched in 2020, is designed to provide long-term growth by investing in small-cap stocks. The fund has shown strong performance in the short term (3-year returns of 53.60%) and is suitable for investors looking for high-growth opportunities in the small-cap space.

The HDFC Small Cap Fund has demonstrated consistent performance in the small-cap category, with a focus on high-growth potential stocks. It's suited for investors looking for long-term growth and willing to accept volatility in exchange for potentially higher returns.

Performance:

Bandhan Small Cap Fund has shown the highest 3-year return (53.60%), followed by Nippon India Small Cap Fund (48.92%), and HDFC Small Cap Fund (44.84%).

Nippon India Small Cap Fund has delivered a 5-year return of 25.83%, while Bandhan Small Cap Fund doesn’t have 5-year data due to its recent launch in 2020.

Risk Measures:

Bandhan Small Cap Fund has the highest Sharpe Ratio (0.91), indicating slightly better risk-adjusted returns compared to the others.

HDFC Small Cap Fund has the lowest Sharpe Ratio (0.73), suggesting lower risk-adjusted returns.

Portfolio Characteristics:

Nippon India Small Cap Fund holds a large number of stocks (233) compared to Bandhan (181) and HDFC (86), offering a more diversified portfolio.

Nippon India Small Cap Fund has the highest Average Market Cap of Rs 19,567 Crores, indicating it tends to invest in larger small-cap companies compared to Bandhan and HDFC, which have average market caps of Rs 11,512 crores and Rs 11,692 crores, respectively.

Suitability:

Nippon India Small Cap Fund: Ideal for investors with a long-term horizon (7+ years) and a tolerance for volatility. It offers higher diversification across stocks and sectors.

Bandhan Small Cap Fund: A more recent option, suitable for investors with a high-risk appetite looking for potentially high returns over a long horizon.

HDFC Small Cap Fund: Best for those looking for a small-cap fund with a strong history but slightly more risk-adjusted returns.

Each of these funds presents a unique value proposition depending on your investment strategy, risk tolerance, and return expectations.

Small-Cap Fund Comparison

Metric	Nippon India Small Cap Fund	Bandhan Small Cap Fund	HDFC Small Cap Fund
Launch Date	September 2010	February 2020	April 2008
1-Year Return	-14.11%	-12.97%	-12.59%
3-Year Return	48.92%	53.60%	44.84%
5-Year Return	25.83%	Not Available	20.23%
Top Holdings	HDFC Bank (2.27%), MCX (1.82%), Kirloskar Brothers (1.40%), Dixon Technologies (1.29%), Karur Vysya Bank (1.26%)	Sobha (2.95%), LT Foods (2.64%), South Indian Bank (2.54%), Cholamandalam Financial (2.28%), PCBL (2.27%)	Firstsource Solutions (6.75%), eClerx Services (3.77%), Aster DM Healthcare (3.49%), Bank of Baroda (3.28%), Fortis Healthcare (2.71%)
Top Sector Weights	Industrials (21.73%), Materials (14.77%), Financials (14.73%), Consumer Discretionary (14.01%)	Financials (19.9%), Consumer Discretionary (15.24%), Healthcare (12.44%), Materials (12.43%)	Industrials (27.22%), Consumer Discretionary (17.45%), Financials (12.56%), Healthcare (12.01%)
Number of Stocks	233	181	86
Average Market Cap (₹ Cr)	19,567	11,512	11,692
P/E Ratio	22.87	16.52	15.90
P/B Ratio	3.30	2.17	2.55
3-Year Earnings Growth (%)	27.18%	23.91%	44.04%

 

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.