Six Consistent Small Cap Mutual Fund Performers

Published: August 2, 2019 at 9:56 am

Last Updated on August 15, 2019 at 12:24 pm

Here are six small cap mutual funds that have consistently beaten mid cap and small cap benchmarks in terms of both risk and reward. A few days ago, we discussed why your small cap mutual fund must beat a mid cap benchmark as that given more returns than a small cap index. Also, since a mid cap index would fall lesser than a small cap index, it becomes a more stringent target in terms of risk management.

Therefore, here are six small cap funds that have outperformed Nifty Midcap 150 Total Returns Index (dividends are included). If you hold a small cap mutual fund, then it is essential that you periodically book profit from them to either fixed income or large cap or mid cap holding as per your asset allocation.

It is also crucial that you reset your asset allocation when the small cap (or mid cap) index is down. This is a natural and straightforward way to manage risk. See for example: Is this a good time to buy mid cap and small cap mutual funds?

How the funds were selected

Funds in the small cap category were compared with Nifty Midcap 150 TR Index over every possible 1,2,3,4,5 year periods. That is the rolling returns were compared. Small cap mutual funds can cause short-term joy or pain to investors. So we demand that a fund to be called a “consistent performer” it should have beaten Nifty Midcap 150 at least 60% of the 1-year and 2-year return periods considered.

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It will also get the investor to sleep better. Of course, this based on past data, and there is no way one can assume this will hold in future but show me a way to select “good mutual funds” without looking at the past. All one can do is to choose funds with a decent risk and reward performance history and take a chance with it but with reviews from time to time.

We additionally demand the same minimum 60% outperformance over 3,4,5 years as well. I usually stick to 3,4,5 year comparison, but I think it is better to go from short-term and then long-term when it comes to at least small caps.

Since the small cap category is relatively small, only 12 funds with at least one-year history, the above filters will also ensure excellent downside protection. That is the funds tend to fall lower when the index falls. We can expect at least 60% or 70% outperformance over 1,2,3,4, and five year periods.

Get the Equity Mutual Fund Performance Screener to make your full analysis over all the mutual fund categories.

Why Nifty Midcap 150 is better

Take HDFC Small Cap Fund – Direct Plan-Growth Option as an example. It has beaten Nifty Small 50 index 95% consistency overall 1-year periods (999). However, this drops to 83% wrt Nifty Small cap 350 and 73% wrt Nifty Midcap 150. Hence Midcap 150 is a stricter benchmark. This is true of most small caps over 1,2,3,4,5 year durations.

Six Consistent Small Cap Mutual Fund Performers

1Aditya Birla Sun Life Small Cap Fund
2DSP  Small Cap Fund
3HDFC Small Cap Fund
4L&T Emerging Businesses Fund
5Reliance Small Cap Fund
6SBI Small Cap Fund

Franklin India Smaller Companies Fund just missed out with 57% 1-year return outperformance but is a good fund to consider. See: Franklin India Smaller Companies Fund Review: Performance with low volatility

Franklin India Smaller Companies Fund Review

HDFC Small Cap Review

SBI Small Cap Fund Review

Large Cap vs Mid Cap vs Small Cap Which is better for the long term?


The six small cap funds listed above have a good performance track record over Nifty Midcap 150 and Nifty Small cap 250 (and 50) indices. However, the midcap index is the toughest to beat. There is no need to worry if your small cap fund is not listed above. Just track performance and keep an eye on risk management.

Also, get into the habit of having a target asset allocation and rebalance if the small index is run up or down too much. This will manage risk well. New investors can consider a fund form the above list but must invest only if they have a clear investment strategy and moderate return expectations.

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