Is HDFC Small Cap Fund a Good Investment? Expert's Review
Do you ever sit back and wonder if small cap funds are a good investment? If yes, then based on 10 years of performance, HDFC Small Cap Fund is one of the names that is hard to ignore. It is amongst the best-performing small cap funds across all diversified equity funds. And it has offered better downside protection than Nifty 50.
Frankly, over the last two years, we have had our fair share of discovering such "gems" from time to time and this small cap mutual fund is among them.
Let's quickly start a detailed analysis, covering every parameter that will define if this small cap fund is worth your money or not.
The Turnaround in Fund's Trailing Returns
If you look at the trailing returns of the HDFC small cap fund by the HDFC Mutual Fund, you will see that it has outperformed its benchmark and peers in all periods.
However, over the last year, it didn’t do as well as others, only growing by 1%. But if you look at the bigger picture, over 3, 5 and even 10 years, this fund has performed pretty well and has given better returns than some of its competitors and the market index.
Trailing Returns of HDFC Small Cap Fund
| Scheme | 1 Year (%) | 3 Years (%) | 5 Years (%) | 10 Years (%) |
|---|---|---|---|---|
| HDFC Small Cap Fund | 1.02 | 18.42 | 24.95 | 17.08 |
| Nifty SmallCap 250 TRI | 4.36 | 17.96 | 25.68 | 16.24 |
| Category Average | 5.54 | 16.94 | 25.26 | 15.11 |
*As of 31.02.25
Pro Tip: Ditch the guesswork with the SIP Calculator, your way to clarity.
HDFC Small Cap Fund has shown to see if that's the case, let's take a look at this small cap mutual fund's rolling returns.
With a strong performance over the past 3 and 5 years, delivering higher returns than the Nifty SmallCap 250 TRI index. Over 3 years, it returned 22.01% compared to the index’s 19.84% and over 5 years, it gave 19.17% vs 14.18%.
Look at the below table for the data:
Rolling Returns & Consistency
| Scheme | 3 Yrs Returns | Consistency | 5 Yrs Returns | Consistency |
|---|---|---|---|---|
| HDFC Small Cap Fund | 22.01 | 79.86 | 19.17 | 82.87 |
| NIFTY SMALLCAP 250 TRI | 19.84 | 68.81 | 14.18 | 58.53 |
*As of 31.01.25
Not only did it perform better, but it also showed greater consistency, with the fund matching or exceeding its performance 79.86% of the time in 3 years and 82.87% in 5 years, which is much higher than the index’s consistency of 68.81% and 58.53%.
This backs our story that proves this small cap mutual fund is a good investment for the long term. The HDFC Small Cap Fund has been more reliable and offered better growth compared to the benchmark, making it a perfect fit for your 2025 portfolio.
It points to the fact that it is amongst the best Small cap Mutual funds in 2025, which has done well in the last few years.
HDFC Small Cap Fund: Calendar Year Returns
Let’s take a quick look at how the HDFC Small Cap Fund has performed over the years. In 2021, the fund did really well, showing great returns. Then, like many investments, it took a hit in 2022.
Now if you look ahead to 2025, it’s expected to drop again, but there’s still hope. The fund has shown strong growth in the past and it has the potential to recover and do well again. If you’re thinking long-term, this fund is still a good choice for growth in the future.
This is a classic case of turnaround and explains why this small cap fund has become popular among investors.
But what are the reasons for this turnaround? Did something change at a fundamental level or was it just because of the post-COVID-19 rally?
Let’s look at possible reasons for the scheme’s turnaround.
New Fund Manager Appointed for HDFC Small Cap Fund
Looking back at the funds history, you will see their was a change in the management. Earlier, Mr Chirag Setalvad was managing this small cap mutual fund since 2014, now Mr Sankalp Baid was appointed the new fund manager in January 2021 and has managed the fund since.
Now, when you look at the returns data, the period of outperformance coincides with this change. The new fund manager's investment style may make the fund deliver stellar returns.
To find out if this is true, we decided to look at the portfolio in detail. And some numbers did stand out.
Returns of HDFC Small Cap Fund Top Holdings List
The table below shows the fund's top holdings and the returns generated by them in the last year. Most of them gave good returns in one year and three of them generated close to 50% returns, while Eris Lifesciences and Sudarshan Chemical generated 62.50% and 96.10% returns, respectively.
| Company Name | Sector | Market Cap | P/E Ratio | 1 Yr Return |
|---|---|---|---|---|
| eClerx Services | Technology | Rs.15,360 Cr | 28.74 | 29% |
| Aster Dm Health | Healthcare | Rs.29,043 Cr | 4.39 | 8.46% |
| Bank Of Baroda | Financial | Rs.1,10,900 Cr | 5.45 | -17.90% |
| Sonata Software | Technology | Rs.13,096 Cr | 30.78 | -38.60% |
| Fortis Healthcare | Healthcare | Rs.49,362 Cr | 61.73 | 49.50% |
| Eris Lifesciences | Healthcare | Rs.19,085 Cr | 58.85 | 62.50% |
| Krishna Institute | Healthcare | Rs.24,422 Cr | 71.45 | 48% |
| Sudarshan Chemical | Materials | Rs.7,800 Cr | 59.5 | 96.10% |
| Power Mech Project | Industrials | Rs.6,197 Cr | 23.14 | -25.30% |
Data as of Jan 31, 2025 source MySIPonline
HDFC Small Cap Fund Portfolio Review
Next, what stood out for us was the allocation towards, large, mid and small cap stocks.
High Exposure to Mid Cap Stocks
The scheme under the old fund manager had the largest allocation to large cap stocks. However, under the new fund manager, the allocation to large cap stocks has decreased while allocation to mid cap stocks has increased to 54.74% as of now.
This high allocation to mid and small caps can be another factor contributing to HDFC small cap fund improved returns because historically they have delivered better returns than Large Cap Mutual Funds.
Long term Growth Investment Style, But High-risk Portfolio
The portfolio turnover ratio of HDFC small cap fund has varied over time, last year it was 6.4% and as of January 2025, it stands at 16.39%. Plus high exposure to mid and small cap stocks usually relate to fund's risk profile. The high these ratios, the higher the risk profile.
The table below summarizes the data for you:
| Scheme | SD | Sharpe Ratio | Alpha | Max Drawdown in 3 Yrs | Index | Recovery |
|---|---|---|---|---|---|---|
| HDFC Small Cap Fund | 15.71% | 0.8 | 1.02 | -15.18% | -11.48% | 6 Months |
The HDFC Small Cap Fund has had a return that varies by 15.71%, showing it is a bit risky and volatile, as expected from Small Cap mutual funds. The fund has a Sharpe ratio of 0.8, which offers some reward for the risk taken but could do better. With an alpha of 1.02, it is beating its benchmark by 1.02%, which is a good sign that the fund is doing better than the market.
However, it has experienced a 15.18% drop at its worst over the past three years. The benchmark index fell 11.48% over the same period, and the fund seems to have recovered over the last six months.
Check Out: 3 Best Small Cap Funds for 2025: Expert's Pick
At last, let’s analyse this small cap mutual fund for the quality of this overall portfolio.
Stock Quality of HDFC Small Cap Fund
In order to check the quality of Mutual Funds, there are 4 key parameters to conduct. These are sales growth, profit growth, cash flow and Price-to-Earnings Ratio (PE).
Let's see what the quality of HDFC small cap fund looks like:
| Fundamental Ratios | Values |
|---|---|
| Sales Growth | 14.47% |
| Earnings Growth | 24.57% |
| Cash Flow | 14.45% |
| PE- Valuations | 18.31% |
The HDFC small cap fund has a strong sales growth at 14.47%, meaning the companies are selling more. In comparison, earnings at 24.57% indicate this small cap mutual fund is making more profit, adding that to a cash flow of 14.45%, suggesting it has enough cash to recover the losses and invest in new emerging opportunities.
In a nutshell, it is a good investment choice for you in the latest fiscal year 2025.
To Conclude if HDFC Small Cap Fund is a Good Investment for You
In short, the HDFC small cap fund review with expert insights helped you understand this small cap mutual fund inside out. It presents a good investment option backed by a strong portfolio and consistent performance by this fund over the years. You can invest via SIP (Systematic Investment Plan and tap into the small-cap market in 2025 with strong growth and multiply your returns daily.
