The Indian equity market has witnessed a massive erosion in the last 5 months, with key indices Sensex and Nifty falling up to 14% (as of March 6) from their September peaks. Among broader indices, Nifty Small-Cap 100 index has tumbled about 22% from its all-time high hit on December 12, 2025. Similarly, small-cap mutual fund as a category has emerged as the biggest loser in the short-term (1 month, 3 months, 6 months and 1 year) amid market sell-offs, compared with categories like large-cap, mid-cap, flexi-cap and multi-cap.
However, if you look at the returns over 5 years, small-cap funds still outperform their peers.
The top 5 funds across mutual fund categories, which have given the best returns in the last 5 years, include 3 small-cap funds, while one sectoral fund and one ELSS fund. The funds that have been looking weak for the last few months have performed the strongest in the long run.
In this story, we will take a look at returns and other features of 5 top-performing mutual funds across categories.
1. Quant Small Cap Fund – Direct Plan
Returns over 5 years (CAGR): 41.72%
At this rate of return, a lump sum investment of Rs 1 lakh 5 years back would have turned into Rs 5,71,756 for investors.
SIP returns (CAGR): 29.96%
An SIP of Rs 10,000 started 5 years back would be worth Rs 12,28,307.
2. Bandhan Small Cap Fund – Direct Plan
Returns over 5 years (CAGR): 33.68%
A lump sum investment of Rs 1 lakh in this fund would have given investors Rs 4,26,979 after 5 years.
SIP returns (CAGR): 27.75%
An SIP of Rs 10,000 started 5 years back would be worth Rs 11,67,048.
3. Nippon India Small Cap Fund – Direct Plan
Returns over 5 years (CAGR): 31.07%
In this fund, a lump sum investment of Rs 1 lakh would be worth Rs 3,86,798 now after 5 years.
SIP returns (CAGR): 26.04%
An SIP of Rs 10,000 started 5 years ago would have turned into Rs 11,21,677.
4. ICICI Prudential Infrastructure Fund – Direct Plan
Returns over 5 years (CAGR): 30.94%
In this fund, a lump sum investment of Rs 1 lakh would have grown to Rs 3,84,911 after 5 years.
SIP returns (CAGR): 30.47%
An SIP of Rs 10,000 started 5 years ago would have turned into Rs 12,42,726.
5. Quant ELSS Tax Saver Fund – Direct Plan
Returns over 5 years (CAGR): 30.26%
In this fund, a lump sum amount of Rs 1 lakh invested 5 years ago would have turned into Rs 3,74,982 now.
SIP returns (CAGR): 19.91%
An SIP of Rs 10,000 would have grown to Rs 9,71,255, if started 5 years back.
(Data: Value Research)
Also read: Motilal Oswal’s 4 funds shine despite market crash – Check their 1-year returns
What do the performances of these funds indicate?
Is it right to be afraid of a decline in small-cap funds or should one look for an opportunity? Don’t panic! Small-cap funds’ recent returns give a message that funds cannot be judged only by short-term performance.
Small-cap funds are high-risk, high-return. When the market falls, they suffer the most losses, but when the market rises, these funds also recover the fastest. This is the reason why small-cap funds have outperformed their large-cap and mid-cap peers over 5 years. Now the big question is — will it be a right decision to exit in fear in the current decline, or should it be considered an opportunity for long-term investment?
Small-cap Funds: Benefits and risks
Benefits:
Great potential for growth in the long term – Small-cap companies grow rapidly, due to which investors are likely to get good returns.
Benefit the most from market correction – When the market recovers, small-cap funds show the fastest growth.
Opportunity to invest in future leaders – Many small-cap companies turn into mid-caps and large-caps over time, which can give investors multibagger returns.
Risks:
Big volatility – These funds can fall heavily in the short term, as has happened in recent months.
Low liquidity – Small-cap stocks have low liquidity, due to which they can fall more during market crashes.
High uncertainty – Small companies cannot withstand business challenges and often fail, which affects the fund’s performance.
What to do?
If you are willing to invest for the long term and tolerate volatility, small-cap funds can be a great option. But if you want quick returns or have trouble bearing risk, this category may not be right for you. Remember, only those who are patient in the market make big profits!
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.