Measuring Financial Performance of Select Small Cap Mutual Funds in India: An Analysis

Abstract

Background: The Indian economy heavily relies on retail investors but rising inflation and limited resources are diminishing their surplus funds. In such challenging times, retail investors increasingly turn to mutual funds, particularly Small Cap Funds (SCFs), for investment opportunities. These funds, known for their higher risk and potential for greater returns, have gained popularity among retail investors in India. Objective: The study aims to assess the performance of four SCFs using risk-return parameters and compare their returns with the benchmark Nifty Small Cap 250 TRI over a decade. Methods: Four SCFs – Nippon India Small Cap Fund (NISCF), HDFC Small Cap Fund (HDFCSCF), SBI Small Cap Fund (SBISCF), and Quant Small Cap Fund (QSCF) – were selected based on AUM of over Rs. 25,000 crores and at least ten years of operation. Data from January 2015 to December 2024 were analysed using metrics like Compounded Annual Growth Rate (CAGR), Sharpe Ratio, Treynor Ratio, and Alpha Value. Results: All funds outperformed the benchmark in return generation. NISCF led in return generation, while QSCF excelled in risk-adjusted returns (Treynor Ratio). Positive alpha values indicated effective stock selection by fund managers, with most funds remaining defensive and minimising unsystematic risks. Conclusion: The selected SCFs performed better than the benchmark in terms of both returns and risk-adjusted metrics. Investors should consider these performance indicators when evaluating mutual fund options for optimal returns, especially in volatile markets.