PGIM India Small Cap Fund: Potential of Big growth with Small Caps

Equity market has been volatile this year due to the ongoing geopolitical conflict, surge in crude oil prices, central bank rate hikes rising global bond yields and weakening INR. FPIs have been net sellers of equity year-to-date (see the chart below). FPI outflows tend to impact large-cap stocks more than mid- and small-cap stocks.

Source: NSDL, as on 30^th September 2026

Small cap stocks have outperformed large cap stocks on a year-to-date basis (see the chart below). Large cap stocks are more impacted by global factors like interest rates / bond yields, global commodity prices, currency movements and FII flows. In the current environment, small cap funds can provide attractive long term investment opportunities for investors. In this article, we will review PGIM India Small Cap Fund.

Source: NSE, Advisorkhoj Research as on 15^th September 2026

Why should you invest in small cap funds?

• Mutual fund schemes which invest at least 65% of their assets under management (AUM) in small cap stocks are categorized as small cap funds.


• Small cap stocks have smaller market share and balance sheets compared to large and midcap stocks, but quality small cap stocks have the ability to deliver high revenue and earnings (EPS) growth compared to large and midcap stocks, owing to their smaller base and industry sector niches they occupy.


• However, small cap companies are more vulnerable in economic downturns compared to large and midcap companies. As such, the risk profile of small cap stocks and funds are higher than midcap and large cap funds.


• The small cap segment is the least researched segment of the market, allowing large scope of price discovery by fund managers of small cap schemes. Over the long term, small cap funds have the potential to give higher returns than midcap and large cap funds. Further, today’s high-quality small-cap stocks can become midcap or even large cap stocks in the future, thereby leading to considerable valuation re-rating and high returns in the long term for investors.

PGIM Small Cap Fund:

The PGIM Small Cap Fund was launched in August 2021, and since then it has given a return of 11.78%. The fund is managed by fund managers Mr. Utsav Mehta, Mr. Vivek Sharma, and Mr. Vinay Paharia for the Equity Portion, and Mr. Puneet Pal for the Debt Portion. If you had invested Rs 1 Lakh into the fund at its inception, it would have grown to Rs 1.77 lakhs by 4^th October 2026.

An SIP of monthly Rs 10,000/- started at the inception of the fund would have grown to Rs 8.9 lakhs as on 4^th October 2026 against a cumulative investment of Rs 6.2 lakhs ( See chart below)

Source: Advisorkhoj Research as on 4^th October 2026.

Outperformed the Small cap category across rolling 1-year tenures

The chart below shows the 1 Year rolling returns of the fund Vs the average returns of all the funds in the small-cap category since 1^st January 2024. You can see that the fund has outperformed in the category in most instances over this period.

Source: Advisorkhoj Research Data from 1^st January 2024 as on 4^th October 2026.

Outperformed the benchmark index across rolling 1-year tenures

The chart below shows the 1 Year rolling returns of the fund Vs its benchmark since 1^st January 2024. You can see that the fund has outperformed its benchmark in most instances over this period.

Source: Advisorkhoj Research Data from 1^st January 2024 as on 4^th October 2026.

Smaller drawdowns compared to the benchmark

The chart below shows drawdown of PGIM Small Cap Fund versus the benchmark index since the inception of the scheme. You can see that the scheme experienced smaller drawdowns compared to the benchmark index in most instances.

Source: Advisorkhoj Research Data, as on 4^th October 2026.

PGIM India Small Cap Fund: Investment Approach

• The portfolio is built utilizing a combination of the top-down and bottom-up portfolio construction process, focusing on the fundamentals of each stock, including quality of management.


• The fund has a diversified portfolio with exposure across sectors, given the fact that small cap stocks present a wider investment universe.


• Minimum 65% allocation to small-cap stocks.


• Stock selection and portfolio construction based on:
  
  
  1. Growth at a Reasonable Price (GARP) Principle
  
  
  2. Fundamentals-driven, bottom-up stock picking approach
  
  
  3. Focus on Return on Equity (ROE), Growth, Free Cash Flow generation, and Leverage ratios


• Focus on fundamentals: Stock price over the medium to long term, tends to track the fundamentals of the company


• Focus on corporate governance: Companies which are backed by good management and demonstrate the ability to scale up are generally rewarded by investors


• Focus on re-rating: Investors are likely to pay a higher multiple for higher expected growth in the future, leading to re-rating of the stock

Current Portfolio

Source: Fund Factsheet as of 31^st August 2026

Who can find PGIM Small Cap Fund suitable?

• Investors looking to increase allocation to small cap through dedicated funds


• Investors looking to invest in high growth portfolios for long-term wealth creation


• Investors seeking to capitalize on the potential of emerging businesses not otherwise represented in the large-cap space


• Investors seeking to invest in a high-conviction, focused small-cap portfolio


• Investors with minimum 5-year investment horizon


• Investors looking to invest in small cap through SIP


• Investors with very high-risk appetite

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