The Small-Cap Giant Quietly Crushing Its Benchmark: Everything To Know About Bandhan Small Cap Fund
- Anjali Rose Abraham
- 2 days ago
- 4 min read
A closer look at Bandhan Small Cap Fund, how it has beaten its benchmark by a wide margin, and whether it deserves a place in your portfolio.
If you had put ₹10,000 into the Bandhan Small Cap Fund the day it launched in February 2020, you would be sitting on ₹40,564 today. The same amount in the small-cap index would have grown to just ₹28,388. In a category where most funds either crash spectacularly or barely keep up with their benchmark, this kind of consistent outperformance is rare. So what is this fund actually doing right?
Explaining the fund:
Bandhan Small Cap Fund, formerly the Bandhan Emerging Businesses Fund, is an open-ended equity scheme that invests primarily in small-cap stocks. These are companies ranked 251st and beyond by market value on Indian exchanges. They are smaller, less famous, and capable of delivering breathtaking returns or wiping out capital. The category is high-risk by nature.
The fund launched on 25 February 2020 and is benchmarked against the BSE 250 SmallCap TRI.
The fund is co-managed by Manish Gunwani and Kirthi Jain, who together bring over three decades of market experience. Manish has led Equities at Bandhan Mutual Fund since January 2023, with more than 25 years in the industry, including senior roles as CIO of Equities at Reliance Nippon Life Asset Management and Senior Fund Manager at ICICI Prudential AMC. He is an alumnus of IIT Madras and IIM Bangalore. Kirthi, a Chartered Accountant, joined Bandhan in May 2023 and brings nine years of experience from Canara HSBC Life Insurance and Sundaram Mutual Fund, a house long respected for its small and mid-cap research. Together, they pair a broad market perspective with the bottom-up stock picking that small-cap investing demands.
The Strategy:
The managers follow a three-filter approach: Quality, Growth, and Reasonable Valuation. In simple terms, they look for companies with clean balance sheets and capable management, businesses growing faster than the market, and prices that have not already run ahead of fundamentals. The aim is to capture the upside small caps are famous for while dodging the value traps and overheated stocks that blow up portfolios.
Notice the 1 Year column. The benchmark lost 5.83% while the fund stayed nearly flat at minus 0.22%. That gap matters more than it looks. Losing less in bad years is what separates a good small-cap fund from a lucky one.
What's Inside The Portfolio?
The fund manages ₹20,129 crores as of 31 March 2026 and spreads it across many stocks rather than betting big on a handful of favourites. The largest single holding is just 3.57% of the portfolio. Here is the top of the list:
Stock | Sector | Weight |
REC | Finance | 3.57% |
Sobha | Realty | 3.25% |
LT Foods | Agricultural Products | 2.27% |
The South Indian Bank | Banks | 1.82% |
Arvind | Textiles and Apparels | 1.65% |
By sector, the fund leans into Financial Services and Realty, and is light on Capital Goods and Automobiles. It also sits on 12.69% cash, which signals discipline. Rather than forcing money into expensive stocks just because investors keep adding cash, the managers are willing to wait.
By size, about 67% sits in true small caps, 16% in mid caps, and 5% in large caps. The mid and large cap slices act as shock absorbers when small caps fall hard, which they do regularly.
What The Numbers Tell Us
A few metrics tell you whether returns came from skill or luck.
The Sharpe ratio is 0.99, which measures how much return you get for the risk you take. Anything close to 1 is considered very good in equity funds.
The Information Ratio is 2.13, which tracks how reliably a fund beats its benchmark. Anything above 1 is impressive, so 2.13 strongly suggests the outperformance comes from genuine process rather than luck.
The standard deviation is 19.22%, a fancy way of saying returns swing meaningfully in both directions.
The official risk rating is Very High, and that is not just regulatory language. Expect drawdowns of 25% or more during sharp corrections. This is the price of admission for small-cap investing.
What makes it a good fund
The combination is hard to argue with: six years of strong outperformance, real downside protection during a brutal year for small caps, a diversified portfolio that does not rely on any single stock, and risk-adjusted returns that suggest genuine skill. The 12.69% cash position also tells you something about temperament. The team is not chasing fads.
What to watch out for
The fund's size is the elephant in the room. At ₹20,129 crores, it is one of the larger small-cap funds in the country. Small-cap stocks have limited trading volumes, so a very large fund can struggle to enter or exit positions without moving prices against itself. Many star small cap funds have slowed down as their assets have ballooned.
The current management team has only been in place since 2023, so they have not yet navigated a full bear market. Sector concentration in Financial Services is a meaningful active bet. And small-cap valuations across India are stretched after years of strong rallies, so even good funds may deliver muted returns from these starting levels.
So, should you invest?
Bandhan Small Cap Fund is a strong candidate for the small-cap slice of a long-term portfolio, with the right expectations. It suits investors with a horizon of at least seven years, a stomach for sharp short-term losses, and an existing foundation of safer large-cap or hybrid funds. It is not where your emergency fund or your house down payment should sit.
The track record is genuine, the process is sensible, and the risk-adjusted returns are among the best in the category. Just go in knowing that small caps will test your patience.
Disclaimer: The views and opinions expressed in this article are solely those of the author and are based on personal analysis and interpretation of available information. They do not constitute financial, investment, or professional advice. Investments in financial markets are subject to market risks, including the possible loss of principal. Readers are strongly advised to conduct their own research and consult a qualified financial advisor or investment professional before making any investment decisions. The author and publisher shall not be held responsible for any financial losses or decisions taken based on the information provided in this article.
Want to read more?
Subscribe to finsightsbysquareleague.com to keep reading this exclusive post.
