A look at this small-cap fund that beat its benchmark by 10%

Summary: A young fund playing in a risky corner of the market, it has seen rapid asset growth and sharp performance swings. This piece breaks down its portfolio, early track record and what investors should know.

Small-caps make headlines when markets are roaring, with stories of multibaggers and overnight wealth creation. But they can also make your stomach churn when the tide turns. That’s the tightrope Motilal Oswal Small Cap Fund asks investors to walk.

Barely two years old—it was launched in December 2023—this fund has already gathered over Rs 5,200 crore in assets as of August 2025. That’s not a timid start. But how does this fund stack up so far? Let’s see what it’s all about.

What Motilal Oswal Small Cap Fund is trying to do

By mandate, Motilal Oswal Small Cap Fund must park at least 65 per cent of its money in small-cap stocks. Translation: it’s fishing in the riskier part of the pond, where companies are young, less researched and often at the beginning of their growth story.

The lure is obvious: Small caps can grow faster than large, established firms. But the trade-off is brutal swings. These funds are not “core” holdings. Think of them as the spicy chutney on your plate. Add some for flavour, but don’t try eating a whole meal of it. For most investors, 15–20 per cent of your equity allocation here is plenty.

A short performance record

For a fund that’s barely cut its teeth, the numbers so far have been noteworthy.

Since its launch in December 2023, the Motilal Oswal Small Cap Fund has outperformed its benchmark by over 10 percentage points, delivering 21.4 per cent versus 11.1 per cent for the BSE 250 SmallCap TRI (as of August 2025).

In 2024, the fund delivered 47.7 per cent returns, nearly doubling its benchmark (at 24.9 per cent). But 2025 has been less kind, with the fund down about 7 per cent so far.

That said, as of August 25, 2025, the fund’s NAV (net asset value) was Rs 14.19, up from Rs 10 at launch in December 2023. That means a Rs 10,000 investment at launch would already be worth about Rs 14,200.

The takeaway? The fund has shown it can capture the upside in good times but has also reminded investors of the whiplash that comes with the territory. With only 20 months of history, though, we don’t yet know how it behaves across different market cycles.

What’s inside the portfolio

The scheme currently holds 50 stocks, with an average market cap of about Rs 16,600 crore, decidedly in the small-cap zone. Its top 10 holdings (as of August 2025) include a mix of consumer, healthcare, financials and industrial names:

• Dr. Agarwal’s Health Care – 3.82 per cent
• Karur Vysya Bank – 3.80 per cent
• CCL Products – 3.59 per cent
• VA Tech Wabag – 2.82 per cent
• Campus Activewear – 2.74 per cent
• Styrenix Performance Materials – 2.71 per cent
• Rainbow Children’s Medicare – 2.61 per cent
• Shaily Engineering Plastics – 2.37 per cent
• Apar Industries – 2.33 per cent
• Vijaya Diagnostic Centre – 2.32 per cent

Together, these form just 16.8 per cent of the portfolio, signalling a reasonably diversified approach. No single stock dominates.

Sector bets

• Consumer Discretionary: 18 per cent
• Industrials: 17 per cent
• Financials: 13 per cent
• Healthcare: 12 per cent
• Materials: 9 per cent

This bias towards consumption and industrials is classic small-cap territory. These are the businesses most likely to ride India’s growth story in manufacturing, aspirational spending and healthcare demand.

So, how does it all add up?

Should you invest?

Motilal Oswal Small Cap Fund has sprinted out of the blocks. Its debut year showed its ability to deliver stellar gains. Its second year has been a reality check. That’s a pretty accurate description of small-cap investing itself.

Its portfolio tilts towards growth-heavy consumption, healthcare and industrials, sectors well placed to benefit from India’s economic expansion. The manager has avoided over-concentration, which is a good sign of risk management.

That said, this isn’t a fund for everyone. Small-cap funds demand patience, a strong stomach and a long horizon of at least seven years. If you panic at sharp 20–30 per cent corrections, this is not your playground.

The biggest limitation here is age. With less than two years of history, the fund simply hasn’t been tested across multiple market moods, making it difficult to assess its consistency.

Take the next step

Curious how Motilal Oswal Small Cap Fund stacks up against other small-cap schemes? Use our Mutual Fund Screener to compare performance, portfolio strategy and costs.

And if you’d rather build a portfolio with personalised recommendations, Value Research Fund Advisor can guide you. It helps you decide whether funds like this deserve a place in your long-term plan and how much spice your portfolio really needs.

Explore Fund Advisor today