SBI vs HDFC vs ICICI Pru small-cap funds: Lessons from their best and worst phases since launch

The return of a mutual fund scheme does not move in a straight line. Till the time an investor remains invested, returns of a scheme go through various ups and downs, depending on the performance of the underlying assets and the fund manager's ability to navigate the volatile markets.

Many investors often make the mistake of investing based on the recent, or say 1-year, returns of schemes. However, this can be risky as immediate returns can sometimes be very high or even very low. Let's understand this by looking at the best and worst phases of three popular small-cap schemes: HDFC Small Cap Fund, ICICI Prudential Small Cap Fund, and SBI Small Cap Fund. All these three schemes are among the oldest small-cap mutual fund schemes in India.

Before reading further, please note that this exercise is for informational purposes only and not intended to recommend any of these schemes for investment.

ICICI Prudential Small Cap Fund

However, the scheme has seen both best and worst phases since launch (see below). If you had invested in this scheme for a year on 26 May 2020, you would have realised a whopping 128% return in a just a year.

However, a similar investment in this scheme in the past, on 26 October 2007, would have led to a negative return of -57% in a year.

The following table shows best and worst phases of ICICI Pru Small Cap Fund since its inception:

HDFC Small Cap Fund

However, the scheme has gone through various best and worst periods since its inception (see below). If you had invested in this scheme for a year on March 9, 2009, you would have realised a whopping 153% return in a just a year.

However, a similar investment in this scheme on 22 March 2019, would have led to a negative return of -44% in a year.

The following table shows best and worst phases of HDFC Small Cap Fund since its launch:

SBI Small Cap Fund

However, the scheme has been through some best and worst phases since its inception (see below). If you had invested in this scheme for a year on February 3, 2015, you would have realised a whopping 125% return in a just a year.

However, a similar investment in this scheme on 22 March 2019, would have led to a negative return of -25.42% in a year.

The following table shows best and worst phases of SBI Small Cap Fund since its launch:

Key lessons

Mutual fund schemes can experience separate best and worst phases, which need not be the same across all schemes.

For instance, the best one-year phase for SBI Small Cap Fund was from February 2014 to February 2015, while HDFC Small Cap scheme enjoyed such a period between March 2009 and March 2010.

Similarly, the worst one-year phase for the ICICI Pru Small Cap Fund occurred from October 2007 to October 2008, whereas for SBI and HDFC small-cap schemes faced similar downturns between March 2019 to March 2020.

Active mutual fund schemes, even those with a long track record, do not always beat their underlying indices. Some schemes may fail to beat the index even during their best phases, as seen in the table above.

It is not possible to time the market, as one can't predict which way it will move. While schemes may deliver negative returns over small phases, they may deliver decent returns in the long term, as reflected in the above tables.

Lastly, one should avoid investing based solely on recent returns. It is always better to choose a scheme that aligns with your financial goals and risk appetite.