The performance of the small cap segment over the last one year has been unremarkable. After a sharp rally from 2020 onwards till 2024, the BSE Smallcap index delivered negative returns in 2025.
The segment has been witnessing high volatility and corrections due to foreign investor outflows, stretched valuations, and muted earnings growth. As a result, the returns on small cap funds too have taken a hit.
Small-cap funds can play an important role in long-term wealth creation, but they demand patience, discipline, and the right entry framework.
While corrections create opportunities, they do not eliminate risk. Given their inherent volatile nature and high drawdown risk, smallcap funds are only suitable for investors with a high risk appetite and a long-term investment horizon.
In this editorial we will know in detail about Bandhan Small Cap Fund, a small cap fund that has risen in popularity within a short time span due to its track record of significant outperformance.
Fund Overview
Launched in February 2020, Bandhan Small Cap Fund (earlier IDFC Emerging Businesses Fund) emphasises diversification and a ‘growth at reasonable price’ strategy.
With a focus on maintaining a portfolio carrying low PE ratio compared to the benchmark, the fund has managed to mitigate risk and reward investors with strong gains.
As of December 2025, the fund has assets under management worth Rs 190 billion (bn), the sixth largest in the category.
The fund is managed by Mr Manish Gunwani, the CIO – Equity, and Mr Kirthi Jain, Vice President – Equity, and Ms Ritika Behera, Vice President – Equity who come with rich experience in the field of research and analysis.
Bandhan Small Cap Fund – Snapshot
| Inception Date | 25-Feb-20 | SI Return (CAGR) | 30.51% |
| Corpus (bn) | Rs 190 | Min. Lumpsum / SIP | Rs 1,000 / Rs 100 |
| Expense Ratio (Dir/Reg) | 0.47% / 1.63% | Exit Load | 1% |
Source: ACE MF
What is the Investment Strategy of Bandhan Small Cap Fund?
Bandhan Small Cap Fund aims to invest in businesses whose market share is gaining, there is significant room for scalability, and which are backed by passionate managements.
The fund avoids overleveraged businesses and excessive risk-taking. Rather it looks for healthy return on invested capital, profitability, cash flows, along with reasonable valuations with rerating potential.
Bandhan Small Cap Fund is benchmark agnostic and it focuses on building a diversified portfolio on a 3-pronged stock selection approach of Quality, Growth, and Reasonable Valuation.
It holds a large portfolio to avoid concentration risk and high downside risk usually associated with small-cap investment. This strategy also allows exposure to a wider set of opportunities including niche segments, emerging trends, and turnaround stories that may not be available in a concentrated portfolio.
Moreover, it holds most of its stocks with a long-term view but does not hesitate to churn a portion of the portfolio if an opportunity arises. This is reflected by the moderate portfolio turnover ratio of 20-70% in the last one year.
How has Bandhan Small Cap Fund Performed in the Past?
Bandhan Small Cap Fund has registered strong performance since its inception.
Launched during the COVID-19 induced market crash, the market lows offered a good opportunity to the fund for portfolio construction. Naturally, the fund has benefitted immensely from the subsequent strong rally seen in the small-cap segment.
Over the past 3 and 5 years, the fund has outperformed the Nifty Smallcap 250 – TRI and the category average by 4-9% CAGR on a rolling return basis.
Even the short-term performance of the fund is encouraging in which it has outperformed the benchmark by a notable margin and has topped the category returns.
Its 1-year rolling returns stand out as many funds in the category have struggled amid weakness in the small-cap segment over the last couple of years.
Bandhan Small Cap Fund – Historical Performance
| 1 Yr (%) | 3 Yr (%) | 5 Yr (%) | Std Dev | Sharpe | Sortino | |
| Bandhan Small Cap Fund | 9.25 | 30.99 | 34.09 | 17.82 | 0.39 | 0.79 |
| Category Average | 1.91 | 21.76 | 30.33 | 16.65 | 0.24 | 0.45 |
| Nifty Smallcap 250 – TRI | -1.06 | 22.27 | 29.86 | 19.06 | 0.23 | 0.44 |
Source: ACE MF
Bandhan Small Cap Fund’s volatility or standard deviation is higher than that of the category average but lower compared to the benchmark.
It has effectively rewarded investors for the risks taken, as is evident by its superior sharpe and sortino ratios which are currently the best in the category.
What is the Portfolio Strategy of Bandhan Small Cap Fund?
Bandhan Small Cap Fund maintains a large portfolio of over 200 stocks.
As of December 2025, the fund held 239 stocks in its portfolio, with the top 10 stocks accounting for nearly 20% of its assets. Notably, Bandhan Small Cap Fund has limited exposure in each stock to under 3-4%
Sobha (3.6%), REC (3.4%), LT Foods (2.2%), The South Indian Bank (2.1%), and PNB Housing Finance (1.5%) are currently the fund’s top holdings.
In terms of sectors, the fund currently has high exposure to finance (13.3%), pharma & healthcare (11.1%), realty (8.7%), bank (7.9%), and chemicals (5.8%).
As of December 2025, the fund has an allocation of 71.7% to small-cap stocks, 13.7% to mid-cap stocks, 4.8% to large-cap stocks, and the balance in cash.
Conclusion
Within a relatively short time span of around six years, Bandhan Small Cap Fund has made a mark for itself and stood strong beside its prominent peers in the category.
The sharp rally in smallcaps between 2020 and 2024 has worked in favour of the fund. However, it needs to be seen how the fund fares in case of corrections and painful bear phases as well.
The fund has registered higher volatility compared to the category average which means that the fund could be vulnerable to higher risk, particularly in case of deep market corrections. That said, its focus on diversification and quality-oriented stock picking could mitigate some of the risk.
As an investor, it is always better to avoid selecting any mutual fund based solely on their past performance.
#Table Note: Data as of January 29, 2026
The securities quoted are for illustration only and are not recommendatory
Past performance is not an indicator for future returns.
Returns are on a rolling basis and in %. Direct Plan-Growth option.
Those depicted over 1-Yr are compounded annualised.
Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
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