HDFC Small Cap: Terrific track record of wealth creation

Why invest in small caps?

• Wealth creation potential over long investment horizon: Historical data shows that small cap stocks have outperformed large cap stocks over the last 20 years ending 31^st March 2026 (see the chart below).
  
  

  

  Source: NSE, as on 31^st March 2026



• Suitable for SIPs: Small caps are more volatile than midcaps and large caps. Investors can take advantage of market volatility by rupee cost averaging through SIP. Rupee cost averaging can enable to accumulate more units and get higher potential returns (see the chart below).
  
  

  

  Source: NSE, as on 31^st March 2026



• Exposure to a broader universe of stocks: Top 100 stocks by market capitalization are large cap stocks. 250^th and lower stocks by market capitalization are small cap stocks. The universe of small cap stocks is much larger than large caps. Small cap index has higher weights in sectors where large caps have lower weights e.g., healthcare, capital goods, chemicals etc. Adding small cap funds to your portfolio can increase portfolio diversification across sectors.


• Value discovery potential: Small cap stocks are lower percentage of institutional ownership compared to large cap stocks. As a result, they are usually under researched compared to large caps and therefore, price discovery in small cap stocks tend to less efficient than large caps. Fund managers have the opportunity to identify small cap stocks that are trading at discounts to their intrinsic valuations. These stocks may experience valuation rerating when the market discovers their value.

In this article, we will discuss about HDFC Small Cap Fund, a small cap scheme with a great wealth creation track record.

Wealth creation track record

The chart below shows the growth of Rs 10,000 monthly SIP since the inception of the scheme. With a cumulative investment of Rs 21.7 lakhs, you could have accumulated a corpus of Rs 1.24 crores in HDFC Small Cap Fund since the inception of the scheme.

Source: NSE, as on 22^nd April 2026

Superior risk / return trade off compared to benchmark

The chart below shows the rolling returns distribution of HDFC Small Cap Fund versus the benchmark since the inception of the scheme for different investment tenures. You can see that fund had lesser percentage instances of negative returns compared to the benchmark index. At the same time the fund gave higher percentage instances of 12%+, 15%+ and 20%+ CAGR returns compared to the benchmark index.

Source: Advisorkhoj Research, as on 22^nd April 2026. 1. HDFC Small Cap Fund. 2. Nifty Small Cap 250 TRI

Consistent quartile ranking performance

The graphic below shows the quartile rankings of HDFC Small Cap Fund based on calendar year returns for the last 10 calendar years. You can see that the fund was in the top 2 quartiles, 6 times in the last 10 years.

Source: Advisorkhoj Research, as on 31^st December 2026

Limited downside risks for investors

The chart below shows the drawdowns of the HDFC Small Cap Fund compared to the benchmark index over the last 5 years. You can see that the fund was able to reduce downside risks for investors in market corrections.

Source: Advisorkhoj Research, as on 22^nd April 2026

SIP performance versus benchmark index

The chart below shows the growth of Rs 10,000 monthly SIP in HDFC Small Cap Fund versus the benchmark index since the inception of scheme. You can see that the fund created more wealth relative to the benchmark index.

Source: Advisorkhoj Research, as on 22^nd April 2026

SIP Rolling Returns

The chart below shows the 10 rolling SIP XIRR of HDFC Small Cap Fund since the inception of the scheme. You can see that the fund gave double digit SIP XIRR returns in more than 90% of instances over 10 year SIP tenures. The fund gave 15%+ SIP XIRR returns in 80% or more instances over 8 and 10 year SIP tenures.

Source: Advisorkhoj Research, as on 22^nd April 2026

Investment strategy

HDFC Small Cap Fund focuses on identifying high-quality small-cap companies with long-term growth potential trading at reasonable valuations. The portfolio construction emphasizes:

• Bottom-up stock selection based on company fundamentals


• Focus on quality companies, with sound financial strength and reasonable return on equity


• Diversification across sectors and industries


• Invest at sensible valuations in companies trading at reasonable multiples

Current portfolio positioning

Source: HDFC MF, as on 31^st March 2026

Why invest in HDFC Small Cap Fund?

• Untapped Universe: With more than 1,000 companies beyond the top 250 by market cap, the small-cap space offers a wider scope for alpha generation.


• Under-Researched = Opportunity: Many small-cap stocks are less tracked by analysts, allowing fund managers to identify mispriced winners early.


• Potential Re-rating: As small companies grow, they attract institutional interest and better coverage, often leading to higher valuations.


• Proven Strategy: The fund has a 17+ year track record of spotting scalable, quality small-cap businesses with sound management.


• Smart Diversification: Adds potential for high-growth to your portfolio, complementing large and mid-cap exposure of investors

Who can consider HDFC Small Cap Fund?

• Investors seeking long-term capital appreciation


• Investors who are comfortable with short-term volatility


• Investors who want exposure to emerging growth businesses


• Investors with minimum 5+ years investment horizon


• Investors who want to invest from their regular savings through SIP

Investors should consult with their financial advisors or mutual fund distributors if HDFC Small Cap Fund is suitable for their investment needs.