Small-Cap Funds See Strong Rebound
Small-cap mutual funds have demonstrated a significant resurgence over the past month, with top-performing schemes registering returns as high as 8.4%. This rally reflects improved market sentiment and healthy domestic inflows. While recent performance is encouraging, financial advisors emphasize that small-cap funds inherently carry higher volatility compared to other equity investments. However, consistent investment through Systematic Investment Plans (SIPs) has proven to be a successful strategy for long-term wealth creation, navigating periodic market fluctuations.
Recent Gains: Top 1-Month Performers
As of July 10, 2026, data from Value Research highlights several small-cap funds that posted robust gains over the preceding month. The Motilal Oswal Small Cap Fund led the pack with an impressive 8.40% return. Other strong performers included the Invesco India Smallcap Fund and Bank of India Small Cap Fund, both returning 7.70%. The Axis Small Cap Fund recorded 7.57%, while the Abakkus Small Cap Fund delivered 7.37%.
Annual Performance: 1-Year Leaders
Looking at the past year, the TRUSTMF Small Cap Fund emerged as the category leader, generating a substantial 24.69% return. The Bank of India Small Cap Fund also delivered strong performance with 16.32%, followed closely by Motilal Oswal Small Cap Fund at 15.81%. ITI Small Cap Fund achieved 13.41%, and JM Small Cap Fund posted 12.21%. It is important to note the segment's volatility, as some funds, like HDFC Small Cap Fund (-2.43%) and Tata Small Cap Fund (-6.61%), experienced negative returns over the same one-year period.
Long-Term Growth: 3-Year CAGR
For investors with a longer horizon, the three-year Compound Annual Growth Rate (CAGR) reveals significant wealth creation potential. The Bandhan Small Cap Fund topped this category with an annualised return of 28.52%. ITI Small Cap Fund followed with 26.41%, and Invesco India Smallcap Fund achieved 25.17%. Other notable performers included the Mahindra Manulife Small Cap Fund (23.43%) and Bank of India Small Cap Fund (22.99%), underscoring the benefits of sustained investment in quality small-cap companies.
SIPs Prove Beneficial Over Time
Systematic Investment Plans (SIPs) have consistently delivered attractive returns, demonstrating their effectiveness in mitigating market volatility through staggered investments. For the three-year SIP period, ITI Small Cap Fund led with 19.02% returns, followed by Invesco India Smallcap Fund (18.67%) and Bank of India Small Cap Fund (18.44%).
Leading SIP Returns: 3, 5, and 10 Years
- 3-Year SIP: ITI Small Cap Fund (19.02%), Invesco India Smallcap Fund (18.67%), Bank of India Small Cap Fund (18.44%).
- 5-Year SIP: Bandhan Small Cap Fund (23.12%), ITI Small Cap Fund (22.95%), Invesco India Smallcap Fund (22.32%).
- 10-Year SIP: Quant Small Cap Fund (25.80%), Nippon India Small Cap Fund (22.36%), Axis Small Cap Fund (20.67%).
Expert Caution: Volatility Remains
Despite the recent positive trends, financial experts reiterate that small-cap funds are among the most volatile equity investment options. Investors considering this category should possess a higher risk appetite and a long-term investment horizon. Investing through SIPs is generally recommended over lump-sum investments, as it helps average out purchase costs and capitalize on the long-term growth trajectory of smaller companies while managing market fluctuations.
Disclaimer: This information is for informational purposes only and should not be construed as investment advice. All mutual fund investments are subject to market risks. Consult a qualified financial advisor before making any investment decisions.