Top small-cap mutual funds with the highest 10-year returns

Small-cap stocks are often considered the high-risk, high-reward segment of the equity market. Investors with a stomach for volatility and a long-term investment horizon can potentially benefit from the impressive growth that these companies often deliver. Small-cap funds are an excellent way to gain exposure to this exciting asset class; however, selecting the right fund is crucial. In this article, we will focus on the top-performing small-cap equity funds with the highest 10-year returns, providing insights into the funds that have consistently outperformed the market over the past decade.

1. Nippon India Small Cap Fund – Direct Plan: 22.79 per cent

With the highest 10-year return of 22.79 per cent, Nippon India Small Cap Fund stands out as the leader in the small-cap space. This fund has demonstrated impressive performance by capitalising on the growth potential of small companies. The strategy behind this fund focuses on identifying high-growth potential companies with strong fundamentals in the small-cap segment.

VRO Rating: 4/5

2. Quant Small Cap Fund – Direct Plan: 20.26 per cent

Coming in second with a return of 20.26 per cent over 10 years, Quant Small Cap Fund has consistently been a strong performer. The fund utilises a quantitative model to select stocks based on various factors, including growth, value, and momentum. This systematic, data-driven approach has allowed it to deliver solid returns despite the volatility in small-cap stocks.

VRO Rating: 4/5

3. Axis Small Cap Fund – Direct Plan: 20.22 per cent

In a close third place, the Axis Small Cap Fund has provided returns of 20.22 per cent over the past decade. Axis has earned a reputation for managing risk effectively while identifying small-cap stocks with robust growth potential. This fund offers a diversified portfolio with a mix of stocks from various sectors, which has contributed to its strong returns.

VRO Rating: 3/5

4. SBI Small Cap Fund – Direct Plan: 20.18 per cent

The SBI Small Cap Fund has delivered a return of 20.18 per cent over the past 10 years. The fund employs a bottom-up approach to stock selection, focusing on companies with strong management, sound financial health, and promising long-term growth prospects. Its consistent performance has made it a top choice for investors seeking exposure to small-cap stocks.

VRO Rating: 3/5

5. HDFC Small Cap Fund – Direct Plan: 19.51 per cent

With 19.51 per cent returns over the last decade, HDFC Small Cap Fund ranks fifth. The fund focuses on companies that are leaders in their niche markets, often with substantial growth potential but not widely recognised. HDFC’s ability to identify emerging winners in the small-cap space has contributed to its strong long-term performance.

VRO Rating: 3/5

6. Kotak Small Cap Fund – Direct Plan: 19.25 per cent

Kotak Small Cap Fund has delivered a return of 19.25 per cent over the last 10 years, making it a solid choice for long-term investors. The fund employs a research-driven approach to stock selection, concentrating on high-quality, growth-oriented companies within the small-cap segment.

VRO Rating: 2/5

7. HSBC Small Cap Fund – Direct Plan: 18.54 per cent

With a return of 18.54 per cent, HSBC Small Cap Fund ranks seventh among the top-performing small-cap funds. The fund seeks to invest in companies with a promising growth outlook, leveraging a rigorous selection process to ensure only the most attractive small-cap stocks are included in the portfolio.

VRO Rating: 3/5

8. DSP Small Cap Fund – Direct Plan: 18.28 per cent

The DSP Small Cap Fund has delivered a return of 18.28 per cent over the past decade. The fund employs a growth-oriented strategy, focusing on companies well-positioned to capitalise on market opportunities. Despite the volatile nature of the small-cap space, DSP has consistently delivered competitive returns.

VRO Rating: 2/5

9. Franklin India Smaller Companies Fund – Direct Plan: 17.48 per cent

Ranked ninth, the Franklin India Smaller Companies Fund has returned 17.48 per cent over the past 10 years. The fund focuses on investing in companies that are in the early stages of growth but have high potential for future expansion. Franklin India’s disciplined approach to small-cap investing has allowed it to maintain consistent performance over time.

VRO Rating: 4/5 

10. ICICI Prudential Smallcap Fund – Direct Plan: 16.31 per cent

The ICICI Prudential Smallcap Fund has returned 16.31 per cent over the past 10 years, ranking it among the top 10. The fund employs a combination of bottom-up and top-down approaches, identifying small-cap stocks with strong growth potential while considering macroeconomic factors that may impact market conditions.

VRO Rating: 3/5

11. Sundaram Small Cap Fund – Direct Plan: 15.74 per cent

With a return of 15.74 per cent, Sundaram Small Cap Fund takes the eleventh spot. This fund focuses on identifying small-cap companies with strong fundamentals that are well-positioned to deliver robust returns over the long term. Although the returns may be slightly lower compared to the leaders, Sundaram has consistently demonstrated its ability over the years.

VRO Rating: 3/5

12. Union Small Cap Fund – Direct Plan: 15.47 per cent

The Union Small Cap Fund has provided 15.47 per cent returns over the last decade. The fund follows a concentrated strategy, focusing on a limited number of high-conviction small-cap stocks. While it has been a steady performer, its returns are more modest than the top-performing funds in the category.

VRO Rating: 2/5

13. Aditya Birla Sun Life Small Cap Fund – Direct Plan: 14.91 per cent

At the bottom of the list, the Aditya Birla Sun Life Small Cap Fund has delivered 14.91 per cent returns over the past 10 years. Although this remains a solid return, the fund has lagged behind its peers. Despite this, it remains a good option for investors seeking a diversified portfolio of small-cap stocks.

VRO Rating: 1/5

Conclusion

Small-cap funds offer high growth potential, and the funds listed above have successfully harnessed that potential over the past decade, delivering impressive returns to their investors. Nippon India Small Cap Fund, with its 22.79 per cent return, stands out as the leader; however, other funds, such as Quant Small Cap Fund and Axis Small Cap Fund, also show strong performance, proving that the small-cap sector is full of opportunities for long-term investors.

When considering an investment in small-cap funds, it's important to remember that while the returns can be high, the risks are also considerable. Small-cap stocks are often more volatile and susceptible to market fluctuations, so it's crucial to have a well-diversified portfolio and a long-term investment horizon to ride out the ups and downs of the market.

To make the most of small-cap investing, consider factors such as fund performance, management style, and the overall risk tolerance of your portfolio. For more insights, use Value Research’s Fund Compare Tool to find the best small-cap funds that align with your investment goals.

Disclaimer: Past performance is not indicative of future results. Always consult with a financial advisor before making any investment decisions.