Bandhan Small Cap Fund vs. Tata Small Cap Fund: Uncover the Best Choice for Your Investment Watchlist!
Bandhan Small Cap Fund vs Tata Small Cap Fund: Which is Better for Your Watchlist?
Date: May 27, 2025
Image source: ayo888/www.istockphoto.comOver the past few years, the emphasis on small-cap stocks has reached unprecedented levels, with many investors eager to capitalize on their volatility and potential for high returns. In 2024, small cap mutual funds stood out as the top-performing sub-category among equity mutual funds, boasting an impressive average return of 27%. However, it’s essential to emphasize that investing in small-cap funds carries significant risks due to their concentrated stake in smaller companies, ranked below 250 in market capitalization.
This editorial focuses on two noteworthy options in this realm: the Bandhan Small Cap Fund and Tata Small Cap Fund. Both schemes have garnered popularity due to similar asset sizes, albeit differing investment philosophies.
Understanding Bandhan Small Cap Fund and Tata Small Cap Fund
The Bandhan Small Cap Fund, an open-ended equity scheme, made its market debut in February 2020 during the pandemic-induced market downturn. As of April 2025, this fund reported assets under management (AUM) of ₹102.44 billion. Contrasting this, the Tata Small Cap Fund, which launched in November 2008 amidst the aftermath of a previous bear market, has an AUM of ₹94.18 billion.
Both these funds concentrate on small-cap equity investments but employ different strategies in their portfolio construction:
- Bandhan Small Cap Fund: This fund adopts a growth-oriented strategy, focusing on quality, growth, and valuations. With a diversified portfolio comprising 184 stocks, 72% are small-caps, with a minor allocation towards mid-caps (10%) and large-caps (6%). It generally follows a buy-and-hold approach but may adjust its holdings for long-term capital growth.
- Tata Small Cap Fund: This fund adopts a ‘growth at a reasonable price’ (GARP) strategy, identifying fundamentally sound businesses poised for growth. The portfolio, consisting of 61 stocks, places nearly 83% in small-caps, ensuring strong cash flows and low leverage.
Performance Comparisons
Comparatively, both funds have showcased remarkable performance against their benchmark, the Nifty Smallcap 250 – TRI. Over the past five years, the Bandhan Small Cap Fund achieved a compounded annual growth rate (CAGR) of 37.3%, whereas Tata Small Cap Fund recorded a CAGR of 34.2% (as of May 23, 2025).
Performance Snapshot:
| Scheme Name | 1-Year Return (%) | 5-Year CAGR (%) | AUM (₹ in Cr.) | Expense Ratio (%) |
|---|---|---|---|---|
| Bandhan Small Cap Fund | 49.75 | 37.34 | 10,244 | 0.39 |
| Tata Small Cap Fund | 32.86 | 34.24 | 9,418 | 0.37 |
Both funds have outperformed their category average and have managed to maintain acceptable risk levels. For instance, an investment of ₹10,000 in Bandhan Small Cap Fund five years ago would have surged to approximately ₹53,894, whereas the equivalent investment in Tata Small Cap Fund would have matured to about ₹51,703.
Risk Management in Focus
Despite their encouraging returns, it is essential to evaluate the risk associated with these investments. The expected volatility in small-cap funds is higher than their large-cap peers. As of now, the BSE Smallcap-to-Sensex ratio indicates valuations are elevated, sitting at 0.63, surpassing the long-term average of 0.46.
Investors eyeing either of these funds should ideally possess a long investment horizon of 7-8 years and a robust risk tolerance. This will allow one to ride out the inherent volatility typical within small-cap domains.
Final Thoughts
Both the Bandhan Small Cap Fund and the Tata Small Cap Fund present solid investment opportunities, driven by sound principles and strategic management styles. However, it is crucial for investors to approach these funds with a clear understanding of the risks involved and the economic indicators at play. A well-calibrated investment strategy can lead to fruitful outcomes in the long run. Happy investing!
