Bandhan Small Cap Fund has delivered a 27.8% annualized return over three years, topping peers with at least Rs 1,500 crore in assets. While the fund has significantly outperformed its benchmark, investors should note that small-cap investments involve higher volatility and liquidity risks, making long-term analysis more important than short-term gains.
What Happened
Bandhan Small Cap Fund has topped the small-cap mutual fund category among larger schemes, recording a 27.8% compounded annual growth rate (CAGR) over the last three years, as of June 25, 2026. This data, which focuses on funds with at least Rs 1,500 crore in Assets Under Management (AUM), highlights the fund's recent performance trajectory relative to its peers.
Performance Versus The Benchmark
The fund has not only generated positive returns but has also managed to significantly outperform its benchmark index. Over the three-year period, the fund beat its benchmark by 17.7 percentage points, with the index returning 10.1%. Even in a tougher one-year environment where the benchmark saw a negative return of -3.5%, the fund showed resilience, outperforming the index by 9.3 percentage points.
Comparing With Peers
Among funds with a similar size, the competition remains close. ITI Small Cap Fund and Invesco India Smallcap Fund recorded three-year returns of 25.0% and 23.7% respectively. While Bandhan Small Cap currently leads this three-year ranking, market leadership often changes. For instance, in shorter timeframes, other funds have occasionally taken the top spot, such as Bank of India Small Cap Fund, which led in three-month and one-year periods. This illustrates why looking at multiple timeframes is safer than focusing on a single number.
The Size And Capacity Challenge
With an AUM of Rs 27,219.1 crore, Bandhan Small Cap Fund is currently the largest among the top five performers in this bracket. For investors, a large AUM in a small-cap fund is a detail to watch. Small-cap stocks are often less liquid, meaning they are harder to buy or sell in large quantities without moving the share price significantly. As a fund's size increases, the fund manager may face challenges in deploying capital effectively in smaller companies, which can sometimes impact the ability to replicate past performance.
Risks To Consider
Small-cap funds invest in companies that are smaller in size and often more sensitive to economic cycles. While the 27.8% return is a strong historical figure, it does not guarantee future results. Small-cap stocks can experience sharp price drops during market downturns, and the sector is generally considered riskier than large-cap or mid-cap funds. Investors should look beyond recent performance and consider their own risk tolerance and investment timeline. High-performing funds today may face different market conditions tomorrow, and consistent performance over a longer period is often more meaningful than a three-year snapshot.