While several small-cap mutual funds posted impressive one-year returns, experts emphasise the significance of longer-term performance history to gauge true resilience amid volatility.
Small-cap mutual funds delivered a strong run over the past year, but the headline numbers deserve a careful read. Among nearly 45 open-ended schemes in the category, only nine rose more than 20% in the latest one-year period, according to the data compiled from ValueResearch. The list is a mix of newer funds still building a record and older names with longer histories that have shown they can hold up beyond a single hot streak.
At the top of the group is TRUSTMF Small Cap Fund, which returned 34.94% over one year. Bank of India Small Cap Fund followed at 29.45%, while Motilal Oswal Small Cap Fund and Union Small Cap Fund posted 27.24% and 26.92%, respectively. ITI Small Cap Fund, Aditya Birla Sun Life Small Cap Fund, JM Small Cap Fund, LIC MF Small Cap Fund and DSP Small Cap Fund rounded out the list, each delivering more than 20% over the same period.
The longer-term figures tell a more useful story for investors. Several of the strongest one-year performers are relatively young and do not yet have full three-year or five-year histories, which means they have not been tested across a full market cycle. By contrast, Bank of India Small Cap Fund combined its latest gain with three-year and five-year returns of 24.06% and 21.18%, suggesting its performance was not built on a brief burst. ITI Small Cap Fund also stood out, with a three-year return of 26.55%, ahead of its one-year figure, while Union Small Cap Fund and DSP Small Cap Fund each have a full 10-year record, at 17.59% and 17.45%, respectively.
That broader context matters because small-cap stocks are typically more volatile than large-cap shares and can swing sharply with market sentiment. Kiplinger’s Mutual Fund Guide for 2026 notes that small caps rebounded strongly after a difficult start, helped by a broader market recovery, improving risk appetite and strong areas such as capital goods, financials and auto ancillaries. But the same backdrop that can lift returns quickly can also reverse just as fast, which is why analysts usually urge investors to look beyond a single-year leaderboard.
For readers screening funds, the message is straightforward: strong short-term returns can be a useful starting point, but they are not enough on their own. Funds with longer records provide a clearer view of how managers behave in both rallies and downturns, and that is especially important in a category designed for investors with a long horizon and a high tolerance for risk.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
