Nippon India Small Cap Fund: Why a boring strategy is delivering extraordinary returns?

Nippon India Small-cap Fund‘s February 2026 portfolio holds over 200 stocks with a 0.15 turnover ratio. The biggest single-sector bet is on banks at 7.33%, the top holding is a commodity exchange, and the fund has beaten its benchmark in every long-term window. 

Nippon India Small-cap Fund: Full breakdown

Nippon India Small Cap Fund’s month-end AUM as of February 28, 2026, stood at Rs 67,641.50 crore, with a monthly average of Rs 67,632.31 crore. The Direct plan Growth NAV was Rs 170.55 at the time of writing this report. The funds Sharpe Ratio stood at 0.92.

The fund has been closed to fresh lump sum subscriptions since July 7, 2023. That closure has held through subsequent addendums in March 2024 and August 2024. SIP flows continue under the terms of those addendums, which is why the corpus has stayed at these levels rather than ballooning further.

The man behind the fund

Fund Manager Samir Rachh has run this portfolio since January 2017 – eight-plus years on a single fund. He brings 34 years of total market experience. The number that best captures his approach is the portfolio turnover ratio for February 2026: 0.15.

 For a fund managing Rs 67,641 crore across more than 200 small cap positions, churning only 15% of the book in a year is an extraordinary level of patience. It means the average stock in this portfolio is held for roughly six to seven years. Rachh is not reacting to quarterly earnings prints; he is running a book of businesses.

The investment philosophy as stated in the factsheet is that it focuses on smaller capitalisation companies that are potential mid caps of tomorrow, with a combination of high growth prospects and relatively lower valuations. The screen is quality management, reasonable business size, and rational valuation. Risk management is done through a margin of safety and diversification, both in sector and stock, rather than through defensive hedging.

 Nippon India Small-cap fund return portfolio: 1-year, 3-year, 5-year

For a lump sum of Rs 10,000 invested in the Regular plan:

• 1 Year: Rs 11,626, return of 16.31% versus benchmark 15.40%
• 3 Years: Rs 17,892, CAGR of 21.40% versus benchmark 21.92%
• 5 Years: Rs 28,493, CAGR of 23.27% versus benchmark 19.02%
• Since Inception (Sep 2010): Rs 1,62,162, CAGR of 19.75% versus benchmark 12.27%

The benchmark, Nifty Smallcap 250 TRI, produced Rs 59,881 since inception against the fund’s Rs 1,62,162 a gap of over Rs 1 lakh on a Rs 10,000 starting investment. The BSE Sensex TRI returned 11.15% since inception, producing Rs 51,283.

For the Direct pla (inception January 1, 2013):

• 1 Year: Rs 11,714, return of 17.20%
• 3 Years: Rs 18,315, CAGR of 22.35%
• 5 Years: Rs 29,702, CAGRof 24.30%
• Since Inception (Jan 2013): Rs 1,67,533, CAGR of 23.88% versus benchmark 15.50%

The 3-year window is the only period where the benchmark’s 21.92% edges out the Regular plan’s 21.40% a narrow gap, and one that the Direct plan’s 22.35% exceeds.

The top 10 holdings of Nippon India Small-cap Fund

The top 10 are marked with asterisks in the February 28, 2026, portfolio statement. In order of allocation:

Multi Commodity Exchange (MCX) makes 2.89% of the holdings.,This is India’s largest commodity derivatives exchange, a financial infrastructure play on the deepening of formal commodity trading.

HDFC Bank accounts for 2.01%,of the total holding. A large cap inside a small cap fund, held as a portfolio anchor.

Karur Vysya Bank makes 1.54% of the total holding. A South India-focused private sector bank with a meaningful re-rating over recent years.

Apar Industries holdings at 1.45%, ensures inclusion of a direct play on India’s power transmission buildout.

State Bank of India accounts for 1.42% of the total holdings, while Axis Bank makes 1.22% of the total holdings.

The TD Power Systems makes 1.30% of the total holding and enables a play on the power sector demand.

Bharat Heavy Electricals (BHEL) stands at 1.16% of portfolio, a public sector engineering company that has ridden the government’s infrastructure and energy capital expenditure.

Emami 1.13% and Kirloskar Brothers 1.06% of the total holdings Industrial pumps with applications across water, power and process industries.

Sector allocation of  Nippon India Small-cap Fund

From the AMFI Classification data in the March 2026 factsheet:

These ten sectors account for approximately 58% of the portfolio. The remaining 42% is distributed across Power, IT Services, IT Software, Textiles & Apparels, Construction, Aerospace & Defence, Fertilisers & Agrochemicals, Leisure Services, Cement & Cement Products, Realty, Retailing, Food Products, Agricultural Products, Transport Services, Consumer FMCG, and others. Equity holdings total 95.90% of NAV, or Rs 64,85,139.14 lakh.

The money market book

Equity holdings at Rs 64,85,139.14 lakh represent 95.90% of NAV. The one awaiting a listing position, Omnitech Engineering Limited, adds Rs 2,199.96 lakh (0.03%). Total equity position: Rs 64,87,339.10 lakh, 95.93%.

The money market book:

• Punjab National Bank Certificate of Deposit (CARE A1+): Rs 49,346.45 lakh, 0.73%
• Canara Bank Certificate of Deposit (CRISIL A1+): Rs 49,339.10 lakh, 0.73%
• Triparty Repo: Rs 1,54,657.17 lakh, 2.29%
• Total money market and repo: Rs 2,53,342.72 lakh, 3.75%

Cash Margin with CCIL: Rs 1,021.27 lakh, 0.02%. Net Current Assets: Rs 22,447.05 lakh, 0.30%.

Investors’ takeaway

This portfolio is built for patience, not quick wins. With over 200 stocks and sector exposure spread evenly, it avoids overdependence on any single idea. The low turnover shows the fund prefers holding businesses over trading them. Long-term returns have stayed ahead of the benchmark, but short-term volatility, like the recent negative SIP return, is part of the ride. It suits someone willing to stay invested for years and sit through market swings.

Note: All data is sourced from the Nippon India Small Cap Fund Monthly Portfolio Statement as on February 28, 2026, and the Nippon India Mutual Fund Fundamentals Factsheet for March 2026. 

Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.