Nippon India Small Cap Fund Review 2026:Worth the Risk?

Did you know that the Nippon India Small Cap Fund has still maintained its position in the top small cap mutual fund charts in 2026, also? Yes, it is true. With its impressive AUM of over Rs 68,287 crore and strong 3-year returns of 26.99%, this mutual fund has been firm in this position.

Managed by Samir Rach at Nippon India Mutual Fund, this equity fund has often outperformed its peers and benchmark, setting a high standard.

But the real question for investors today is, "Is the Nippon India Small Cap Fund a good investment in 2026?"

Let us know with this Nippon India Small Cap Fund review and examine the fund’s strategy, strengths and other key details to help you decide if it is a good addition to your portfolio in FY2026. So, let us dive in.

Nippon India Small Cap Fund Overview

The Nippon India Small Cap Fund is one of the equity mutual funds managed by the Nippon India Mutual Fund AMC. The fund house launched it on September 16, 2010. This mutual fund mainly aims for long-term capital by investing in small companies with high growth potential. 

Here are the basic details of the Nippon India Small Cap Mutual Fund:

In the next part, we will understand this fund's investment style to check if it aligns with your investment goals.

Investment Strategy of Nippon India Small Cap Fund

The investment strategy of this fund is focused on small-cap stocks that are currently undervalued but have strong growth potential over the long term. Similar to other small cap mutual funds, this fund also has a high risk level.

The fund implements a buy and hold approach by buying stocks of high-growth small companies early in their lifecycle and holding them as they grow while actively managing the portfolio to mitigate risks.

The fund also employs a GARP (Growth at a Reasonable Price) strategy, investing in companies with high growth potential but at a reasonable valuation or cost. This flexible strategy allows investments in a mix of growth and value stocks based on market cycles.

The fund invests in over 230 different stocks, which lowers risk by having only a small amount (3%) in any one stock. It keeps turnover moderate at 20%. The fund actively adjusts its investments in small companies to respond to changes in the market.

Must Read: Best Small Cap Mutual Funds for Long Term Investment in 2026

Let us analyse the performance of this fund and find out if it is appropriate for your goals.

Nippon India Small Cap Fund Returns

Nippon India Small Cap Fund has delivered strong returns over the long term despite short-term market volatility. Check out the rolling returns and SIP returns of this mutual fund here:

Rolling Returns

The Nippon India Small Cap Fund has consistently surpassed its benchmark with 26.99% 3-year returns and 23.62% 5-year returns. In terms of consistency, the fund shows better consistency than its benchmark, with scores of 82.32% and 88.17% over 3 and 5 years, respectively. Refer to the graph below for a clear understanding:

This performance indicates the fund's stability across medium and long-term horizons and strong fund management against market volatility.

SIP Returns

The Nippon India Small Cap Fund's SIP returns also beat its category average over 3 and 5 years, with 8.66% and 16.66% SIP returns, respectively. However, the fund has shown a mixed performance against its benchmark. It did not cross the benchmark for the 3-year returns, but showed a good performance over the long term by beating its benchmark over 5-year SIP returns. Check out the graph below:

The graph shows that the fund delivers strong and stable long-term performance with its SIP investments, making it suitable for a long-term perspective.

Pro Tip: Use a SIP Calculator and estimate the future returns of your SIP investment easily.

Now, we will check out the profile of the one who manages the fund with his unique perspective.

Fund Manager Profile of Nippon India Small Cap Fund

A good fund manager and their investment style decide how a fund will perform in the market. The planner and organiser behind the success of the Nippon India Mutual Fund is Samir Rach, who is the leader of a strong management team.

Managing this mutual fund since January 2017, Samir Rach has over 25 years of experience in the equity markets. He is an expert in small and mid cap investments and his focus is on identifying high growth potential stocks that are currently undervalued.

He proved his expertise and ability in 2020 by minimising losses during the COVID-19 pandemic, making him a perfect fit for managing a high-risk but high-growth small cap mutual fund. Under his guidance, the fund's AUM has increased from Rs 3000 crore in 2017 to over Rs 64827.61 crores in 2025.

Next, you will closely explore the portfolio and the composition of this mutual fund.

Analysing Nippon India Small Cap Fund Portfolio Composition

The composition of a fund's portfolio shows how it will perform in the worst and the best market conditions. Here is the detailed overview of the fund's portfolio:

Market Cap Allocation

The Nippon India Small Cap Fund mainly focuses on small-caps, offering high growth potential with 70.79% allocation and some volatility, followed by large-caps providing a cushion of stability and liquidity with 14.87% allocation. Lastly, 14.34% in mid-caps, providing a balance between growth and stability. Look at the graph for a clear picture:

 

This blend shows the fund's diversified, growth-focused view while managing risk by investing in all three market caps.

Asset Allocation

The Nippon India Small Cap Fund reflects an aggressive, growth-focused investment style with a high equity exposure of 96.15%. To handle market instabilities, the mutual fund invests a small portion of 3.83% in cash and cash equivalents and 0.02% in debt, which provides liquidity and flexibility. Let us clear it with a graph: 

This allocation shows the long-term growth perspective of the fund.

Sector Allocation

The fund invests in more than 15 sectors, with no industry holding above 20%, to achieve diversification and balance risks. The primary sector allocations of the Nippon India Small Cap Fund include Industrials (20.62%), which provides exposure to India's manufacturing industry growth, followed by Financials (16.89%) and Consumer Discretionary (14.19%). With Materials (12.89%) and Consumer Staples (11.28%), it focuses on trends in small-cap consumption and innovation that are both defensive and emerging. Refer to the graph for a clearer picture:

This wide range of investments (the top 3 sectors make up about 50-51%) combines the potential for high growth with ways to reduce risk in the unpredictable small-cap market.

Also Read: Top 10 Mutual Funds for SIP in 2026: Best Picks to Grow Wealth

In the next heading, let us explore whether investing in this fund is a good move for 2026 or not.

Is Nippon India Small Cap Fund a Good Investment in 2026?

Nippon India Small Cap Fund shows a mixed quality profile compared to its peers. The fund has strong cash flow growth of 4.81%, compared to 3.28% for other mutual funds, which offsets its high price-to-earnings (P/E) ratio of 23.51. This indicates that its businesses can generate free cash despite ups and downs in small company stocks. Its earnings growth is slightly lower than the category average at 14.41%, while the sales growth is similar to its category, with a rate of 10.71%. 

These factors make it a suitable option for growth-focused investors in 2026. It has good quality and strong rankings among small-cap funds. However, the weaker earnings growth shows that there may be risks with how small companies execute their plans, so this should be watched closely.

Let us analyse the suitability of this fund for several types of investment goals.

Who Should Invest in Nippon India Small Cap Fund?

Described below are the types of investors who are highly suitable for investing in the Nippon India Small Cap Fund in 2026:

• Aggressive Investors

Investors who can tolerate the fluctuations in the investment value due to the high risk associated with this mutual fund.

• Investors with a Long-Term Horizon

This fund is highly suitable for investors who are willing to invest continuously for a long term (over 7 years) to ride out the market cycles.

• Wealth Builders

Appropriate for investors looking for capital appreciation by investing in the emerging growth potential of small cap companies.

• Investors Seeking Diversification

If you want to diversify your investment portfolio with small companies, consider investing in this small cap mutual fund.

• Experienced Investors

This is best for experienced investors who understand the stock market and small companies. They can manage the risks involved.

Concluding Nippon India Small Cap Fund Review

To wrap up the Nippon India Small Cap Fund Review, it is a strong choice for investment in 2026, especially for those seeking higher growth. While it comes with a high level of risk, its varied portfolio has shown impressive performance over the long term.

This fund is a good option for investors who want to build wealth over time and are comfortable with risks and market fluctuations.

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FAQs

1.What are the risks of the Nippon India Small Cap Fund?

Small cap stocks have high volatility. They carry liquidity risks and can be sensitive during economic slowdowns.

2.SIP vs lump sum in Nippon India Small Cap Fund 2026?

SIP manages market fluctuations and can give around 22% annual returns. If the market drops by 10-15%, a lump sum may be better.

3.What are the Top holdings in Nippon India Small Cap Fund?

The top holdings of Nippon India Small Cap Fund are Multi Commodity Exchange (3.02%), HDFC Bank (1.93%) and SBI (1.49%).

4.How much should I invest in the Nippon India Small Cap Fund?

As a beginner, you can start a Rs 5,000-10,000 monthly SIP. Experienced investors can invest 10-15% of their portfolio.

5.What are the tax implications of the Nippon India Small Cap Fund?

STCG (held for less than 1 year) is taxed at 20%. LTCG (held for more than 1 year) is taxed at 12.5% on amounts over Rs 1.25 lakh.

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Disclaimer: The views and opinions expressed in this blog are for informational purposes only and do not constitute any financial, investment or legal advice. Mutual Fund investments are subject to market risks; always read the scheme documents carefully. It is advisable to consult a qualified financial advisor before making any investment or trading choices.