Quant Small Cap Fund topped the charts with 24.98% 10-year SIP returns, beating Nippon, SBI, and HDFC. While small-cap funds performed well overall, returns varied significantly among the largest schemes. The data showed that a larger asset base does not always mean higher returns for investors in this equity category.

Small-cap mutual funds topped equity categories over 10 years, but returns varied among the largest schemes. Quant Small Cap led with 24.98% SIP returns, while SBI and HDFC delivered less than 18%, despite managing over ₹40,000 crore each.

Small-cap mutual funds have emerged as the best-performing equity mutual fund category over the 10 years. However, investors in the category's largest schemes have experienced varying returns, with three of the five biggest funds delivering annualised systematic investment plan (SIP) returns of over 18%, while two failed to cross this mark.

Nippon India Small Cap Fund, the largest scheme in the category by assets under management (AUM), delivered a 10-year annualised SIP return of 21.13%. Its AUM stood at ₹80,906 crore, according to Value Research data. The fund ranked second among the 13 small-cap schemes in the comparison.

SBI Small Cap Fund, the second-largest scheme with an AUM of ₹41,059 crore, delivered a lower SIP return of 17.24%. HDFC Small Cap Fund, with assets of ₹40,801 crore, performed slightly worse, generating 16.99%.

Quant Small Cap Fund, despite having a significantly smaller AUM of ₹35,572 crore, topped the performance chart with a 10-year SIP return of 24.98%. Axis Small Cap Fund, the fifth-largest scheme with an AUM of ₹30,678 crore, delivered 19.78%.

The comparison highlights that a larger asset base does not necessarily translate into higher investment returns. While the biggest scheme also ranked among the top performers, the second and third-largest funds underperformed several smaller peers.

How the five largest small-cap funds performed

The five largest schemes accounted for a substantial share of the assets represented in the comparison. Their 10-year SIP returns, however, varied by nearly eight percentage points.

Quant Small Cap Fund delivered the highest returns among the five largest schemes, outperforming Nippon India Small Cap Fund by nearly four percentage points. Its 24.98% annualised SIP XIRR also made it the best-performing scheme among all 13 funds analysed.

Nippon India Small Cap Fund was the only other scheme among the five largest to deliver returns above 20%. Axis Small Cap Fund followed with 19.78%, while SBI and HDFC Small Cap funds delivered returns below 18%.

The gap between the best and worst performers among the five largest schemes was 7.99 percentage points. This indicates that investors could have experienced substantially different outcomes depending on the scheme they selected, even within the same mutual fund category.

Union Small Cap Fund, with an AUM of ₹2,732 crore, delivered a 10-year SIP return of 19.82%, marginally ahead of Axis Small Cap Fund. DSP Small Cap Fund, with assets of ₹21,467 crore, generated 19.42%, while HSBC Small Cap Fund delivered 18.90% with an AUM of ₹18,513 crore.

Kotak Small Cap Fund, which managed ₹19,141 crore, delivered 17.97%. Sundaram Small Cap Fund generated 17.64%, while ICICI Prudential Small Cap Fund returned 17.46%.

Franklin India Small Cap Fund and Aditya Birla Sun Life Small Cap Fund were among the weaker performers, delivering 16.54% and 15.56%, respectively.

Overall, six of the 13 schemes delivered annualised SIP returns exceeding 18% over the 10-year period. Quant Small Cap Fund led the list, followed by Nippon India, Union, Axis, DSP and HSBC.

Should investors choose a fund based on its returns?

A strong SIP return is useful when comparing funds, but it should not be the only factor influencing an investment decision. Small-cap funds invest in companies with relatively smaller market capitalisations, which can experience sharper price movements and liquidity constraints during market corrections.

Investors should also examine how consistently a scheme has performed across different market cycles rather than relying on returns over a single period. Its portfolio concentration, investment strategy, fund manager's track record and expense ratio are other factors worth evaluating.

Investors should assess their risk appetite and investment horizon before allocating money to small-cap funds. These schemes are generally more suitable for investors who can remain invested for the long term and tolerate sharp fluctuations in portfolio value.