Which small-cap funds found most multibaggers in last 3 yrs?

Summary: Finding multibaggers sounds like the holy grail of small-cap investing, but the truth is more nuanced. Even top small-cap funds strike gold only occasionally. Our analysis shows which funds uncovered the most 3x stocks over the last three years, and why that didn’t always translate into the highest returns.

Rohit Sharma is called the Hitman for a reason. When he decides to swing, the ball often disappears into the stands. Yet even a prime Sharma needs close to 18 balls, on average, to launch a six. In football, modern-day icons, Lionel Messi and Cristiano Ronaldo, score roughly one goal for every six shots they take. Basically, even the elite do not strike gold every time.

Investing is cut from the same cloth. Like sports, it doesn’t offer a re-take. It’s all about how you react in that moment of truth. You can practice, you can rehearse and you can learn all that you want, but when the decision point arrives, it’s your instinct — albeit a trained instinct — that ultimately takes over. Which is why hitting a six or a goal or finding a jackpot of a stock is not a daily event.

And this is exactly what shows up when we study small-cap funds. Even the strongest performers, with all their rigour and research, hit gold only a handful of times. Let’s look at Nippon India Small Cap first. Over the last three years, the fund has held roughly 361 stocks. Of these, 26 delivered at least 200 per cent absolute returns. A hit rate of around 7 per cent might sound modest, but viewed through the lens of sports probabilities, it is actually better than beast-mode Rohit Sharma at clearing the rope.

The next in line are ITI and Franklin. ITI Small Cap, the second-best three-year performer, found 18 three-baggers out of 224 stocks. But the real impressive numbers are of Franklin India’s small-cap fund. Across its 152 holdings over three years, it was home to 17 stocks that grew more than 3x, an extraordinary hit rate of over 11 per cent. Among other prominent funds, only HDFC Small Cap had an 11.5 per cent strike rate.

Interestingly, Bandhan Small Cap, the category leader over the last three years, tells a different story. The fund held a sprawling 386 stocks, out of which only 13 became multibaggers. In absolute terms, that number matches Axis, HDFC and DSP. But Bandhan’s performance has been powered less by frequency and more by magnitude, a pattern we will return to shortly.

The multibagger storm

While the broader market has grown 15.2 per cent in the last three years, small-caps were breathing more rarefied air, especially in 2023 and 2024. In fact, the Nifty Smallcap 250 index delivered an annualised 37.6 per cent in 2023 and 2024. So, it’s no surprise that as many as 255 stocks, most of them small-caps, grew more than 3x (200 per cent absolute returns) in the last three years.

Within this environment, the biggest drivers for the top-performing funds are names you may already know. Kaynes Technology, which delivered 11x inside the same portfolio, was the most influential contributor. ITI Small Cap, the second-best performer of the last three years, benefited from a 10x surge in Inox Wind, while the third fastest-growing fund, Invesco India, rode a nearly 7x gain in Multi Commodity Exchange of India.

Across the industry, a small group of stocks ended up supporting a significant portion of the returns. Multi Commodity Exchange of India was held by 14 small-cap funds and delivered 10x gains in the last 36 months, while Hitachi Energy appeared in eight small-cap fund portfolios.

Does more multibaggers mean better returns?

Surprisingly, no. On the surface, one might assume that a fund with more multibaggers should automatically outperform. But the data stubbornly refuses to confirm this intuitive belief. Franklin, for instance, had 17 stocks that jumped more than 200 per cent, while HDFC also had a far higher success rate than Bandhan’s. Yet Franklin and HDFC substantially trail Bandhan’s three-year annualised return of 30.6 per cent.

However, this gap is not mysterious. It comes down to how returns are built. For starters, funds can often hold their winners in tiny allocations. A dozen 3x winners do not move the needle if each represents only 0.3 per cent of the portfolio.

Two, broader portfolios almost always carry more losers. For every standout gainer, there may be two underperformers quietly dragging the average down. A hit rate means little without looking at what happens to the “misses”. And finally, in small-caps, magnitude matters far more than frequency. A single winner (like Kaynes Technology, for example) can overpower multiple 3x stocks. This is the mathematics of power-law markets. Put simply, a few outliers make all the difference.

This is why the real story is not just how many multibaggers a fund owns, but whether it owns the right ones in the right sizes for the right duration.

So, which small-cap funds can suit you best?

So, which small-cap funds suit you best? That depends less on past returns and more on you, your risk tolerance, time horizon and ability to stay invested when markets turn ugly. This is where Value Research Fund Advisor helps. It looks beyond headline performance to evaluate downside protection, consistency, portfolio quality and fund-manager behaviour. The aim isn’t to chase the hottest small-cap fund, but to find one you can actually stick with through full market cycles. Because in small-caps, discipline matters far more than drama.

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