If you are a mutual fund investor who is willing to embrace risk, then small cap funds offer significant growth potential.
These funds invest in companies ranking beyond 250 in terms of market capitalisation.
Small-cap companies are either in the early stages of development or they’re operating in niche within their sector.
This gives them higher growth potential compared to large caps. However, they are also more volatile, making it important to approach these funds with caution.
In this article, we will explore the highest return small cap mutual funds in the last 10 years, based on SIP returns.
Small Cap Funds – 10 Year SIP
| Scheme Name | Invested Amt (Rs) | Present Value (Rs) | XIRR (%) |
| Nippon India Small Cap Fund | 1,200,000 | 4,410,027 | 24.58 |
| Axis Small Cap Fund | 1,200,000 | 3,905,935 | 22.34 |
| HDFC Small Cap Fund | 1,200,000 | 3,727,903 | 21.48 |
| Kotak Small Cap Fund | 1,200,000 | 3,719,938 | 21.44 |
| HSBC Small Cap Fund | 1,200,000 | 3,601,827 | 20.84 |
| Nifty Smallcap 250 – TRI | 1,200,000 | 3,274,384 | 19.07 |
Source: ACE MF
#1 Nippon India Small Cap Fund
Nippon India Small Cap Fund is the most popular scheme in the Small Cap Fund category having a corpus of Rs 580.3 billion (bn).
The fund uses diversification as a risk-mitigation technique by holding a large portfolio of over 200 stocks spread across sectors.
In the last 10 years, Nippon India Small Cap Fund grew at an XIRR of 24.6% compared to 19.1% in its benchmark Nifty Smallcap 250 – TRI.
A monthly SIP of Rs 10,000 in the fund over a 10-year period, i.e., a total investment of Rs 1.2 million (m), would now be valued at Rs 4.41 m.
The fund’s top stocks are HDFC Bank (2.2%), Multi Commodity Exchange of India (2%), and Dixon Technologies (1.3%).
Its top sectors are capital goods (12%), healthcare (8.2%), and chemicals (7.7%).
The fund’s focus on picking quality, high-conviction companies with strong business models available at reasonable valuations, has resulted in superior risk-adjusted returns.
#2 Axis Small Cap Fund
Launched in November 2013, Axis Small Cap Fund is among the popular schemes in the Small Cap Fund category with an AUM of Rs 233.2 bn.
Even though its NAV was muted between 2023-24, its long-term performance is remarkable.
In the last 10 years, Axis Small Cap Fund delivered an XIRR of 22.3% compared to 19.1%in its benchmark Nifty Smallcap 250 – TRI.
A monthly SIP of Rs 10,000 in the fund over a 10-year period, would now be valued at Rs 3.91 m.
The fund’s top stocks are Krishna Institute of Medical Sciences (3%), Cholamandalam Financial Holdings (3%), and Blue Star (2.8%).
Its top sectors are healthcare (11.3%), finance (11%), and infotech (6.5%).
Axis Small Cap Fund focuses on investing in high-conviction, quality stocks available at attractive valuations. It holds these stocks with a long-term view until their full potential is derived.
#3 HDFC Small Cap Fund
Launched in April 2008, this fund underwent multiple changes in its mandate before being recategorised under the Small Cap Fund category in 2018.
HDFC Small Cap Fund has done well under the supervision of Chirag Setalvad, who is known for his high conviction long-term bets.
In the last 10 years, HDFC Small Cap Fund grew at an XIRR of 21.5% compared to 19.1% in its benchmark Nifty Smallcap 250 – TRI.
A monthly SIP of Rs 10,000 in the fund over a 10-year period, would now be valued at Rs 3.73 m.
The fund’s top stocks are Firstsource Solutions (6%), Aster DM Healthcare (4%), and Bank of Baroda (3.8%).
Its top sectors are healthcare (12.8%), infotech (12.7%), and auto & ancillaries (10.4%).
Even though this fund has seen bouts of short-term underperformance, it has proved its ability to do well over market cycles.
#4 Kotak Small Cap Fund
Kotak Small Cap Fund was originally launched as a Mid Cap Fund in February 2005. The fund was repositioned and renamed as Kotak Small Cap Fund in June 2018.
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 last 10 years, Kotak Small Cap Fund grew at an XIRR of 21.4% compared to 19.1% in its benchmark Nifty Smallcap 250 – TRI.
A monthly SIP of Rs 10,000 in the fund over a 10-year period, would now be valued at Rs 3.72 m.
The fund’s top stocks are Aster DM Healthcare (3.7%), Krishna Institute of Medical Sciences (3.5%), and Vijaya Diagnostic Centre (3%).
Its top sectors are healthcare (21.5%), auto & ancillaries (9.6%), and retailing (5.8%).
The fund’s focus on identifying quality stocks in the small-cap space and holding them with a long-term view has worked in its favour.
#5 HSBC Small Cap Fund
The erstwhile L&T Emerging Businesses Fund was merged with HSBC Small Cap Equity Fund in October 2022 after HSBC AMC acquired L&T AMC. The surviving scheme was renamed as HSBC Small Cap Fund.
The fund aims to identify under-researched and under-owned small-cap stocks available at reasonable valuations that possess the ability to demonstrate high earnings growth potential.
In the last 10 years, HSBC Small Cap Fund grew at an XIRR of 20.8% compared to 19.1% in its benchmark Nifty Smallcap 250 – TRI.
A monthly SIP of Rs 10,000 in the fund over a 10-year period, would now be valued at Rs 3.6 m.
The fund’s top stocks are KPR Mill (2.4%), Neuland Laboratories (2.1%), and Aditya Birla Real Estate (2.1%).
Its top sectors are finance (11.3%), healthcare (8%), and capital goods (7.6%).
HSBC Small Cap Fund maintains a well-diversified portfolio across sectors to avoid concentration risk, which has helped it perform well over market cycles.
Conclusion
Small cap funds offer the potential for high returns by aiming to profit from the growth potential of emerging companies.
Thus, they can be a worthy addition to the aggressive portion of one’s equity portfolio.
However, they carry higher risk compared to their mid and large-cap peers.
Thus, as a thoughtful investor, you should align these funds with your financial goals, risk appetite, and investment horizon.
You should have the ability to tolerate short-term market volatility and have an investment horizon of at least 5-7 years when investing in small cap funds.
# Table Note: Data as of May 30, 2025
The securities quoted are for illustration only and are not recommendatory
Past performance is not an indicator for future returns
Returns are XIRR in percentage. Monthly SIP of Rs 10,000 over a 10-year period in Direct plan – Growth option considered.
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