4 Small Cap Funds to Watch for the Next 10 Years

What if the next multibagger stock happens to be among India's smallest listed companies?

Largecaps are steady, mid-caps are popular, but it's the smallcap space that's gaining traction.

Supported by robust domestic demand, new capital spending cycles, and government emphasis on manufacturing, numerous small-cap businesses are recording all-time high revenues and entering fresh markets.

If one looks at the last decade's performance in the stock market, the scenario is quite evident.

Nifty Midcap 150 index has given the highest returns but the Nifty Smallcap 250 TRI has been keeping up-and in many phases, has even been ahead.

Following a correction during early 2024, smallcaps have made a remarkable recovery, closing the gap with midcaps and comfortably outpacing largecaps, as represented by the Nifty 100. The small cap index is driven by earnings growth, improving balance sheets, and renewed investor interest.

This resiliency demonstrates why smallcaps should be included in long-term portfolios. Yes, they can be riskier in the short term, but over a 10-year time frame, they have frequently returned superior compounded returns.

The secret is to pick funds with a good investment process and remain invested through market cycles.

For investors with a 10-year horizon, smallcap mutual funds offer a chance to ride the next wave of market gains. These firms are small now but might be the sector leaders tomorrow.

Performance of Top 4 Small Cap Funds

Scheme Name	Absolute (%)	CAGR (%)			Risk Ratios
	1 Year	3 Years	5 Years	10 Years	SD Annualised	Sharpe	Sortino
Nippon India Small Cap Fund	20.7	27.56	37.49	22.84	16.32	0.38	0.71
SBI Small Cap Fund	17.04	20.2	29.27	21.43	14.67	0.30	0.55
HSBC Small Cap Fund	18.66	24.51	33.66	20.63	17.89	0.32	0.54
Axis Small Cap Fund	20.92	21.7	30.13	20.28	14.39	0.36	0.67
Category Average	19.67	23.07	32.78	18.54	17.02	0.33	0.60
Benchmark - Nifty Smallcap 250 - TRI	20.36	23.23	32.11	15.89	18.75	0.33	0.62

Source: ACE MF

#1 Nippon India Small Cap Fund

Nippon India Small Cap Fund has consistently shown the capacity to identify growth stocks early and stick with them through several business cycles.

It has gained a place as one of the most consistent performers among the small cap funds category.

It's notable with a 10-year rolling CAGR of 22.84%, which makes it a big long-term wealth generator in small cap space.

As of July 2025, the fund manages assets worth Rs 659.22 bn, reflecting investor confidence and its long-standing track record. The portfolio is diversified, typically holding over 100 stocks to spread risk while maintaining exposure to high-growth themes.

Among its biggest holdings are Multi Commodity Exchange of India (2.16%), HDFC Bank (2.04%), and Kirloskar Brothers (1.34%)-businesses set to gain from the speeding up of tech adoption, increasing digital infrastructure, and the consolidation of India's banking system.

Sector-wise, the fund has a bias towards capital goods (11.96%), healthcare (8.47%), and chemicals (8.04%) - sectors that are structurally well-placed for long-term growth.

#2 SBI Small Cap Fund

SBI Small Cap Fund has a balanced, quality-based strategy for investing in small companies-meeting growth possibilities while managing risk.

The scheme has delivered a 10-year rolling CAGR 21.43%, reflecting a capacity to generate wealth consistently through various phases of the market.

As of July 2025, the scheme has assets under management worth Rs 355.63 bn, among the highest in the small cap category.

Its largest equity holdings are in E.I.D. Parry (3.23%), SBFC Finance (2.63%), and Krishna Institute of Medical Sciences (2.60%)-all niche leaders with long-term growth prospects.

Sector-wise, the fund has high exposure to chemicals (7.99%), capital goods (7.78%), and finance (7.62%).

The investment policy of SBI Small Cap Fund is focused on purchasing quality companies early in their growth cycle and keeping them through cycles.

#3 HSBC Small Cap Fund

Introduced in May 2014, HSBC Small Cap Fund has developed a reputation for spotting great businesses in the early days of their growth and holding them through cycles, making it a worthy contender in the small cap space.

With a rolling CAGR of 20.63% over the last 10 years until July 2025, the fund has provided steady long-term returns with a high degree of discipline in stock selection.

The scheme has an AUM of Rs 165.35 bn. The portfolio has around 50-60 stocks, thereby being diversified without weakening conviction.

Top positions are held by Multi Commodity Exchange of India (2.22%), Nippon India Life Asset Management (2.18%), and Techno Electric & Engineering Company (2.07%).

Sector-wise, the fund has a bias towards finance (13.24%), capital goods (8.74%), and healthcare (7.55%). It's invested in sectors gaining from India's infrastructure push, formalisation of the economy, and rising consumption.

HSBC Small Cap Fund's focus on quality rather than momentum allows it to ride out market volatility while providing competitive returns in the long term.

#4 Axis Small Cap Fund

Axis Small Cap Fund has created a niche for itself by adopting a philosophy of quality-at-a-reasonable-price, targeting fundamentally sound small companies with sustainable growth prospects.

It has, over time, shown a consistent capability to find growth stocks along with the need to control risk-a strategy that has provided competitive returns while capping unnecessary volatility.

As of 2025 July, the scheme has an AUM of Rs 263.79 bn and has a 10-year rolling CAGR of around 20.28%. It has demonstrated a capability to earn meaningfully during market upswings while safeguarding capital during downturns.

Pivotal holdings are Krishna Institute of Medical Sciences (3.09%), Brigade Enterprises (2.37%), and Cholamandalam Financial Holdings (2.31%)-companies that leverage brand strength, operational excellence, and scalable business models.

Sector exposure is skewed towards healthcare (13.58%), finance (10.22%), and chemicals (7.03%), which correlate with India's emerging middle-class consumption, export competitiveness, and domestic manufacturing growth.

These schemes are apt for investors who would like to invest in India's smallcaps while avoiding the steep volatility associated with this category of stocks.

Final Thoughts: Staying the Course with Smallcaps

Small businesses are agile, flexible, and able to quickly capitalise on developing market trends whether it's a new export market opening, a domestic consumption boom, or a change in policy.

For long-term investors prepared to withstand the rough patches, the potential reward could be substantial.

Although the segment has been doing well in 2025, let's not forget that smallcaps move in cycles. Periods of strong growth may be followed by a swift correction and vice versa.

That's why a strategy based on systematic investing through SIPs is beneficial in taming the emotional rollercoaster and preventing investors from missing the up moves.

Not all smallcaps will become multibaggers. It's paramount to have the right fund managers on your side - those with a proven process, industry know-how, and self-control to steer clear of risks.

Investing a share of your equity portfolio in small cap funds today can deliver meaningful returns over the long term.

Patience, self-discipline, and the ability to think in years rather than months is what will turn potential into wealth.

#Table Note: Data as on August 07, 2025
Past performance is not an indicator of future returns.
This list is not exhaustive.
The securities quoted are for illustration only and are not recommendatory.
Rolling Returns in %. Direct Plan - Growth option considered

Disclaimer: This article is for information purposes only. It is not a recommendation and should not be treated as such.