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Summary: Think you can guess which small-cap funds grew the fastest this year? Think again. The biggest names didn’t necessarily make the cut. Instead, a few dark horses have quietly raced ahead, growing their assets at breakneck speed between April 1 and September 30, 2025. We didn’t just list them; we looked at some of the reasons as to why they’re suddenly on every investor’s radar.
Small-cap funds have had a tough year. As a category, they’ve shrunk 1.8 per cent so far in FY25. Yet, investors haven’t lost faith. Between April 1 and September 30, 2025, they pumped in nearly Rs 27,000 crore into these funds.
That’s heartening because it shows investors are learning to stay disciplined and willing to ride out the volatility. That said, it’s also a bit worrying because small caps can be mercurial, and investors who haven’t seen a sharp downturn in this space may not fully grasp how wild the ride can get. (We recently did a story tracing the biggest drawdowns in small caps over the past 15 years, just to remind investors of the risk side of this category.)
Still, with so much fresh money coming in, we decided to look at which small-cap funds have grown the fastest in terms of assets under management (AUM) this financial year. For those unaware, AUM simply refers to the total money managed by a mutual fund. A fund’s AUM can rise for two reasons: a) when the fund’s portfolio does well and b) when more investors pour money in.
1. Bandhan Small Cap Fund (Regular)
Its AuM grew from Rs 10,244 crore in April 1 to Rs 15,737 crore in September 30, up by 53 per cent.
That’s a stunning rise in just six months. It’s not hard to see why, though. Bandhan Small Cap Fund is a five-star rated scheme as per Value Research Ratings, and it’s been the top-performing small-cap fund over the past three years, clocking an annualised return of 33.1 per cent.
SIP investors have done equally well, earning over 30 per cent annualised returns over a similar period. Even over five years, its SIP returns stand at 28.6 per cent, the highest in the category.
Now, let’s look at risk. The fund’s three-year Standard Deviation (SD), which measures how much a fund’s returns swing up and down, stands at 17.9 per cent, lower than the BSE 250 Smallcap TRI’s 18.9 per cent. Think of SD as a measure of how ‘bumpy’ the ride is. A higher SD means the fund’s returns jump around a lot; a lower one means a smoother experience. So, Bandhan’s lower SD tells us that it has delivered strong returns without excessive volatility.
When it comes to risk-adjusted performance, we looked at the Sortino Ratio. This metric goes one step further. It doesn’t penalise a fund for all kinds of fluctuations, only for downward movements, i.e., when the fund actually loses money. A higher Sortino Ratio means the fund has rewarded investors better for the amount of downside risk it has taken.
Bandhan’s three-year Sortino Ratio of 1.8 per cent is comfortably higher than both the small-cap index and the category average (1.2 per cent each), suggesting that it hasn’t just delivered high returns, it has done so with smarter risk-taking, falling less when markets turned rough.
Furthermore, the fund’s five-year downside ratio is 86 per cent, which means that during market downturns, it lost only 86 per cent as much as the index did. In other words, if we assume the market fell 10 per cent at any point in the last five years, this fund declined just 8.6 per cent, showing better resilience during rough patches.
2. Edelweiss Small Cap Fund (Regular)
The fund’s corpus grew from Rs 4,237 crore at the beginning of the financial year to Rs 5,057 crore on September 30, 2025, which is an increase of 19.4 per cent.
This four-star-rated fund has seen a steady rise in investor interest. While its recent performance hasn’t been as spectacular as Bandhan’s, it’s still commendable: 22.5 per cent over three years and 30.8 per cent over five years. For perspective, the BSE 250 Smallcap TRI delivered 22.6 per cent and 28.6 per cent, respectively, over the same periods.
Edelweiss’s small-cap scheme has also managed to keep volatility in check. Its three-year Standard Deviation of 15.9 per cent is not only lower than Bandhan’s 17.9 per cent, but also below the category average of 17.1 per cent.
Its Sortino Ratio of 1.26 again beats both the index and the peer average (1.2 each), showing the fund has rewarded investors well for the level of risk taken. In addition, the five-year downside ratio of 76.3 per cent is also low, which means it has shielded investors better during market falls.
3. HDFC Small Cap Fund (Regular)
Already one of the largest in its category, HDFC Small Cap Fund has added nearly Rs 6,000 crore in just six months. The fund saw its AUM grow from Rs 30,880 crore to Rs 36,828 crore, up 19.3 per cent.
A four-star-rated scheme, it has built a consistent track record over time. The fund has outperformed the BSE 250 Smallcap TRI across most timeframes:
- Three years: 24.6 per cent vs 22.6 per cent
- Five years: 32.1 per cent vs 28.6 per cent
- Seven years: 20.8 per cent vs 19.9 per cent
- Ten years: 19.9 per cent vs 15.8 per cent
Its three-year Standard Deviation is 15.3 per cent, even lower than Edelweiss’s, showing it’s among the least volatile small-cap funds.
The Sortino Ratio of 1.5 again beats the small-cap index and peers (1.2 each). And its five-year downside ratio of 75.2 per cent is the lowest of the three, meaning it has historically shielded investors well during downturns.
The takeaway
It’s clear that the surge in AUM for these funds isn’t just about investor enthusiasm; it’s backed by solid, long-term performance.
But should you invest in any of these funds? Are they recommended by us?
For that, we suggest you explore Value Research Fund Advisor, our personalised, data-driven service that helps you build a winning mutual fund portfolio.
Our analysts have done the hard work of curating a list of small-cap funds that truly deserve a place in your long-term portfolio. Because investing smartly isn’t about chasing the latest winner, it’s about building wealth that lasts.
Also read: The most bullet-proof small-cap fund of the last 10 years
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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