LIC MF Small Cap Fund: A promising small cap fund for long term investors

Small cap funds have been popular with retail investors for a long time. Over the last few years, the popularity of small cap funds seems to have increased. Despite high volatility, the funds mobilized by small cap funds in July 2025 was second highest among all equity diversified fund categories (excluding thematic / sectoral funds) (source: AMFI, as of 31^st July 2025). Small cap funds have been wealth creators for investors over long investment tenures. In this article, we will review LIC Small Cap Fund.

Why small cap funds?

• The chart below shows the growth of Rs 10,000 in the small cap index versus the broad market index (Nifty 50) over the last 10 years. You can see that small caps have greater wealth creation potential over long investment horizon.
  
  

  

  Source: NSE, Advisorkhoj Research, as on 29^th August 2025



• The universe of small cap stocks is much larger than large and midcap stocks, which have 100 and 150 stocks respectively. Small cap stocks refer to stocks that are ranked 250^th or below by market capitalization. There are many more investment opportunities in small caps.


• Small caps provide broader industry / sector exposure compared to large caps. Small caps provide exposure to such sectors also where large caps have no presence or sectors which are under-represented in large cap / broad market indices.


• Since institutional investor ownership of small cap stocks is relatively lower than large or midcap stocks, these stocks tend to be under-researched compared to large cap or even midcap stocks. As such price discovery of small cap stocks may not be as efficient as large caps which are more researched. Fund managers can use this relatively inefficient price discovery to identify undervalued stocks and create alpha for investors.


• Today's small cap stocks have the potential to become midcap or large cap stocks in the future, leading to significant valuation rerating in the process and alpha creation for investors.

About LIC Small Cap Fund

The fund was launched in 2017 and has a track record of over 8 years of wealth creation (see the chart below). You can see that your investment would have multiplied 3X since the inception of the fund.

Source: Advisorkhoj Research, as of 29^th August 2025

Rolling Returns - Consistency

The table below shows the average, median, maximum and minimum rolling returns of LIC MF Small Cap Fund for different investment tenures since the inception of the fund. You can see that the fund generated returns on an average range of 17% - 20%+ CAGR returns over longer investment tenures. The median returns were also in the same range for longer investment tenures. Also observe that over 5 year plus investment tenures, the fund always gave double digit returns and that the fund has generated positive returns over a 5 year rolling basis.

Source: Advisorkhoj Research, as of 29^th August 2025

The chart below shows the rolling returns distribution of the LIC MF Small Cap Fund for different investment returns since the inception of the fund. Observe that over 5 year plus investment tenures, the fund never gave negative returns. Also, as investment tenure increased, the percentage instances of 12%+ CAGR returns (outlined in red) also increased to more than 80%.

Source: Advisorkhoj Research, as of 29^th August 2025

History of outperforming the benchmark index

The chart below shows the calendar year returns of LIC MF Small Cap fund versus the benchmark index since the inception of the fund. You can see that fund outperformed the benchmark index in 5 out of 8 years since its inception.

Source: Advisorkhoj Research, as of 29^th August 2025

Wealth creation through SIP

The chart below shows the growth of Rs 10,000 monthly SIP in LIC MF Small Cap Fund since its inception. You can see that with an investment of less than Rs 10 lakhs, you could have accumulated a corpus of nearly Rs 22 lakhs (as of 29^th August 2025).

Source: Advisorkhoj Research, as of 29^th August 2025

SIP performance across market conditions

The chart below shows the 5 year rolling SIP XIRR of LIC MF Small Cap Fund across all market conditions since the inception of the fund. Please note that since the inception of the fund we had major market corrections like mid / small cap crash in 2018, COVID-19, Russia Ukraine war and the current correction due to US tariffs. Despite the corrections, the fund always have 15% plus XIRR (see the chart below).

Source: Advisorkhoj Research, as of 29^th August 2025

Outperformed the benchmark in Rolling SIP returns across market conditions

The table below shows the average, median, maximum and minimum rolling XIRR of LIC MF Small Cap Fund versus the benchmark index. You can see that the fund outperformed the benchmark on all parameters over 3 and 5 year SIP tenures across all market conditions. Not only were the average and median SIP XIRR higher for the fund versus the benchmark index, the fund also had lower downside relative to benchmark index; in other words, superior risk adjusted SIP returns.

Source: Advisorkhoj Research, as of 29^th August 2025

The table below shows the XIRR distribution for different rolling SIP tenures versus the benchmark index since the inception of the scheme. You can see that the percentage instances of 15%+ SIP XIRR (outlined in red) for the scheme is higher than that of the benchmark for different SIP tenures. Also observe that the percentage instances of 15%+ SIP XIRR increases with SIP tenures, while percentage instances of negative returns decreases. Therefore, investors should always have long investment tenures for SIP.

Source: Advisorkhoj Research, as of 29^th August 2025

Current portfolio positioning

Source: LIC MF Fund Factsheet, as of 31^st July 2025

Current portfolio positioning

• Investors seeking capital appreciation or wealth creation over long investment horizon


• Investors with very high risk appetites


• Investors with minimum 5 year investment tenures


• Investors looking to invest from their monthly savings through SIP

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

Source: Advisorkhoj Research, as of 31^st August 2025