Small-cap mutual funds have staged a strong comeback over the past year, rewarding disciplined SIP investors with outsized gains. Data from Value Research shows that 11 equity mutual funds have delivered annualised SIP returns of over 20% in the last one year, with small-cap schemes accounting for six of them and four occupying the top five spots.
The rally was led by Bank of India Small Cap Fund, which generated an impressive 40.05% SIP return, highlighting how investors who continued systematic investments despite volatility have been rewarded. We have excluded sectoral and thematic funds in our analysis.
Small-cap funds lead the recovery
The performance table underscores the resurgence of the small-cap segment over the past year. Of the 11 equity funds that delivered annualised SIP returns above 20%, six belong to the small-cap category, making it the most represented segment. Mid-cap funds accounted for three schemes, while one large & mid-cap fund also made it to the list.
Apart from the top four small-cap funds, Mahindra Manulife Small Cap Fund and Sundaram Small Cap Fund also featured among the best performers, delivering SIP returns of 25.58% and 21.56%, respectively.
Among other categories, HSBC Midcap Fund emerged as the best-performing mid-cap scheme with a 25.68% SIP return, followed by WhiteOak Capital Mid Cap Fund (22.16%), JM Midcap Fund (20.95%) and Invesco India Mid Cap Fund (20.93%). Invesco India Large & Mid Cap Fund was the only fund in its category to cross the 20% mark.
For investors, these returns translated into meaningful wealth creation. A monthly SIP of ₹10,000 in the top-performing Bank of India Small Cap Fund grew to ₹1.44 lakh over one year, while the remaining top 10 funds accumulated between ₹1.33 lakh and ₹1.39 lakh.
Don't chase one-year winners
While the recent performance highlights the strength of small-cap funds, experts have repeatedly cautioned against choosing mutual funds solely on the basis of short-term returns. Small-cap schemes are among the most volatile equity categories and often witness sharper corrections than large-cap funds during market downturns.
Investors should instead evaluate a fund's long-term performance across market cycles, consistency of returns, portfolio quality, investment strategy, fund manager's track record and expense ratio before investing. They should also ensure that the scheme aligns with their investment horizon, financial goals and risk appetite.
For long-term investors, continuing SIPs through different phases of the market has historically proved to be a more effective wealth-building strategy than trying to chase the latest top-performing funds.
