Nippon India Small Cap and Bandhan Small Cap are two prominent funds for small-cap exposure. While Nippon India offers scale with a long track record, Bandhan Small Cap has shown higher risk-adjusted returns through a value-conscious strategy. Investors should weigh Nippon's stability against Bandhan's performance and agility before investing.
Small-cap mutual funds continue to attract significant interest from Indian retail investors looking for long-term wealth creation. As of July 2026, the Nifty Smallcap 250 index has shown a strong rebound following a challenging 2025. Two of the most discussed options in this space, the Nippon India Small Cap Fund and the Bandhan Small Cap Fund, offer distinct approaches for those looking to tap into smaller, growing businesses.
Scale and Portfolio Strategy
Nippon India Small Cap Fund is the largest fund in its category, currently managing assets worth Rs 74,604 crore. With a 16-year history, it follows a 'Growth at a Reasonable Price' strategy. The fund maintains a concentrated sector focus in Industrials, Financial Services, and Consumer Discretionary. Because of its massive size, the fund has previously restricted new Systematic Investment Plan (SIP) and Systematic Transfer Plan (STP) registrations to manage inflows effectively. Its portfolio is designed for long-term holding, reflected in a low turnover ratio of 19 percent.
In contrast, the Bandhan Small Cap Fund operates with a smaller asset base of Rs 27,219 crore, which provides the fund manager more flexibility to move in and out of positions. This fund follows a value-conscious philosophy, focusing on companies that appear undervalued relative to their growth potential. Its sector allocation is spread across Financials, Materials, and Consumer Discretionary. With a portfolio turnover ratio of 22 percent, it remains slightly more active than its larger peer.
Performance and Risk Metrics
When comparing historical performance, Bandhan Small Cap Fund has delivered a 30.9 percent CAGR since its inception in 2020. Nippon India Small Cap Fund, which has a much longer track record dating back to 2010, has recorded a 24.2 percent CAGR since its inception. While Bandhan has benefited from its launch timing ahead of the market recovery post-2020, its recent three-year and five-year performance also shows higher returns compared to the Nippon India fund.
Investors often look at risk-adjusted returns to understand if a fund is providing enough reward for the volatility it takes on. Bandhan Small Cap Fund currently shows a higher Sharpe Ratio of 1.05 compared to 0.71 for Nippon India. A higher Sharpe Ratio generally indicates better returns per unit of risk. Nippon India, however, demonstrates lower overall volatility, with a standard deviation of 19.4 percent compared to 20.7 percent for Bandhan. This suggests that while Bandhan may be more volatile, it has historically compensated investors with higher performance for that added risk.
Key Considerations for Investors
The choice between these two funds often comes down to an investor's specific goals. Nippon India Small Cap Fund is frequently chosen by those who prioritize a long, proven track record and the stability that comes with a massive, well-established fund house. On the other hand, the Bandhan Small Cap Fund may appeal to those seeking a value-oriented approach and the potential for higher risk-adjusted performance, aided by a more agile, smaller corpus. Regardless of the choice, small-cap funds carry high inherent volatility. Investors are generally advised to maintain an investment horizon of at least five years and use SIPs to manage the impact of market ups and downs.