HDFC Small Cap Fund is the only scheme with negative YTD returns in 2026: What sets it apart from the category leader?

Small-cap mutual funds are required to invest at least 65% of their assets in small-cap stocks. According to the latest available data from the Association of Mutual Funds in India (AMFI), there are 36 schemes in the category.

An analysis of their year-to-date (YTD) performance shows that HDFC Small Cap Fund is the only scheme to have delivered negative returns in 2026 so far, at -1.2%. In contrast, Bank of India Small Cap Fund has emerged as the top performer in this category, with YTD returns of 32.71% as of 14 October 2026.

The divergence extends to their one-year performance. HDFC Small Cap Fund is the only scheme in the category to have delivered negative returns over this period, at -2.48%. However, no fund in the category has posted negative returns over the three- and five-year periods.

The contrasting performance raises questions about the portfolio differences between the two schemes, including their market-cap allocation, sector exposure and stock selection.

HDFC Small Cap Fund has allocated 90.07% of its portfolio to equities, with cash and cash equivalents accounting for the remaining 9.93%. Bank of India Small Cap Fund has a lower equity allocation of 85.67%, alongside 5.59% in debt and 8.74% in cash and cash equivalents.

Despite having a higher equity allocation, HDFC Small Cap Fund has lagged behind Bank of India Small Cap Fund. The difference becomes more apparent when their market-cap allocations are compared.

*Source: Value Research, Direct plans, Data as on 30 September 2026

Bank of India Small Cap Fund has a higher allocation to small-cap stocks at 91.76%, compared with 82.59% for HDFC Small Cap Fund. However, HDFC has greater exposure to large- and mid-cap stocks.

The difference suggests that Bank of India's higher small-cap exposure may have contributed to its stronger performance, although returns also depend on individual stock selection, sector exposure, and the performance of underlying holdings. However, both small-cap funds hold 85 stocks in their portfolios.

Both funds have their largest sector allocations in industrials and consumer discretionary stocks.

The two funds have broadly similar exposure to industrials, consumer discretionary, and financials. However, Bank of India Small Cap Fund has a higher technology allocation, while HDFC Small Cap Fund has greater exposure to healthcare and materials.

Stock selection provides another point of distinction. HDFC Small Cap Fund's leading holdings include Firstsource Solutions, Aster DM Healthcare, Gabriel India, eClerx Services, and Bank of Baroda.

Bank of India Small Cap Fund's leading holdings include Hero Motors, Sky Gold and Diamonds, City Union Bank, Sterlite Technologies and Quality Power Electrical Equipment.

The two funds have limited portfolio overlap, at 8%, with only 11 stocks in common.

The common holdings include City Union Bank, Indian Bank, Eris Lifesciences, Apar Industries, Vijaya Diagnostic Centre, NRB Bearings, Vardhman Textiles, GNA Axles, Firstsource Solutions and FIEM Industries.

This limited overlap highlights how differently the two fund managers have constructed their portfolios within the same small-cap category. Their sector allocations, market-cap exposure, and individual stock choices can lead to substantially different returns.

Sheetal Goel is a Content Producer at Livemint, where she covers corporate developments, personal finance, business trends, markets, and SEBI-related updates. She focuses on simplifying complex financial concepts and presenting them in a clear, reader-friendly manner, thereby helping audiences better understand investment trends, personal finance, and market developments. Her writing focuses on making finance more accessible to everyday readers while maintaining clarity, accuracy, and relevance. <br><br> She holds a degree in Economics (Hons.) along with an MBA in Finance, which has helped her develop a strong foundation in financial analysis, market understanding, and business reporting. Before joining journalism, she worked with finance and broking firms, where she closely followed market developments, investment strategies, and evolving industry trends. This practical exposure strengthened her understanding of financial markets. She has also written content across multiple formats and platforms, including YouTube, LinkedIn, and Instagram. <br><br> Over time, she has developed expertise in covering market-linked stories, investor-focused topics, and regulatory updates in a simplified yet informative style. She also enjoys reading and listening to Hindi poetry, reflecting her appreciation for literature and creative expression beyond the world of markets and numbers.

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