Small Cap Funds Get ₹9,039 Crore in September. What Are Bandhan, Invesco and Nippon Buying?

Small-cap mutual funds attracted ₹9,039 crore in September 2026, the highest among all equity mutual fund categories. However, an interesting contrast emerged among the 3 schemes receiving the most money. Bandhan Small Cap Fund, Invesco India Smallcap Fund and Nippon India Small Cap Fund all delivered negative returns during the month, yet investors continued putting money into them. Together, these schemes attracted estimated inflows of ₹3,923 crore, reflecting continued interest in smaller companies despite market volatility.

A closer look at their portfolios reveals that these 3 funds follow considerably different investment approaches. Bandhan maintained nearly 13% of its assets in cash and cash equivalents while increasing its holdings in financial companies. Invesco introduced new banking and insurance stocks into a relatively concentrated portfolio, while Nippon continued spreading its investments across more than 250 stocks. These differences are important because funds belonging to the same small-cap category can carry different risks and deliver different returns.

Why Did Small Cap Mutual Funds Attract ₹9,039 Crore in September 2026?

According to the Association of Mutual Funds in India, small-cap mutual funds received net inflows of ₹9,038.57 crore in September, compared with ₹7,973.33 crore in August. This represents an increase of approximately 13.4% in just 1 month, despite weakness in the broader equity market. During September, the Nifty Smallcap 250 declined approximately 3.12%, while the Nifty 50 fell 6.06%. Interestingly, smaller companies performed relatively better than large companies during this particular month, even though small-cap stocks are generally considered riskier investments.

One possible explanation for the continued interest is the long-term growth potential that investors associate with smaller companies. Regular SIP investments may also have contributed to inflows, as investors following long-term investment plans do not necessarily stop investing when markets decline. However, strong inflows should not be confused with lower investment risk or attractive stock valuations. More money entering small-cap funds does not guarantee positive future returns, particularly when the underlying companies are trading at expensive valuations.

Which Small Cap Mutual Funds Received the Highest Inflows in September?

According to an ACE MF-based analysis, Bandhan, Invesco India and Nippon India were the 3 small-cap schemes receiving the highest estimated net inflows in September 2026. Bandhan attracted more than twice the estimated inflows of Invesco, while Nippon received slightly less money than in August. Interestingly, all 3 funds delivered negative returns during the month despite continued investor participation. This creates an important distinction between investor behaviour and actual fund performance, which investors should understand before evaluating a scheme.

The figures are based on ACE MF estimates for September 2026, with individual scheme inflows calculated using changes in AUM and monthly investment returns. They are not official scheme-level net subscription figures published by AMFI. Together, the 3 schemes attracted estimated inflows equivalent to approximately 43% of the small-cap category's reported net inflows. However, the comparison should not be interpreted as a precise accounting of how the category's total subscriptions were distributed across these funds.

Why Can Fund Inflows Rise Even When Returns Are Negative?

Mutual fund returns and investor inflows measure 2 different things, which is why they can move in opposite directions. Returns show how the value of the underlying investments changes, while net inflows represent fresh money entering the scheme after accounting for withdrawals. For example, Bandhan Small Cap Fund managed approximately ₹34,176 crore in August, and its portfolio subsequently declined in value during September. However, estimated net inflows of ₹2,191 crore helped its month-end AUM increase to approximately ₹35,856 crore despite the negative return.

Nippon India Small Cap Fund experienced the opposite movement in AUM, even though investors continued putting money into the scheme. Its assets declined because the fall in its underlying portfolio value more than offset the estimated ₹750 crore of fresh net inflows. This demonstrates why an increase in AUM does not necessarily mean a fund has performed well, while a decline does not automatically indicate investor withdrawals. Both market movements and investor transactions must be considered when interpreting changes in the size of a mutual fund.

Bandhan vs Invesco vs Nippon Small Cap Fund Returns

Although all 3 schemes recorded negative returns during September, their performance over a longer period presents a different picture. Bandhan recorded the smallest decline during the month, falling 1.50%, while Invesco experienced the steepest decline of 3.78%. However, Invesco delivered the highest cumulative return over the preceding 6 months, showing that the fund performing best in 1 period may not lead during another. This is one reason why investors should not rely on short-term performance rankings when comparing mutual funds.

These returns represent the periods ended September 2026, with the 6-month figures showing cumulative rather than annualised performance. The differences can arise from stock selection, sector exposure, portfolio concentration and the proportion invested in cash or larger companies. A concentrated portfolio may benefit substantially when its largest investments perform well, but the same positions can create pressure when those companies decline. Understanding how a scheme generates returns is therefore more useful than simply identifying which fund has delivered the highest recent percentage gain.

What Did Bandhan Small Cap Fund Buy in September 2026?

Bandhan Small Cap Fund attracted the highest estimated inflows among small-cap schemes, receiving ₹2,191 crore during September. The scheme maintained a highly diversified portfolio containing approximately 261 stocks under the ACE MF classification, with relatively small allocations to individual companies. Its largest holdings included Sobha at approximately 2.30%, REC at 2.13%, and Cholamandalam Financial Holdings at 1.90%. This structure means that the performance of any 1 company has a relatively limited direct influence on the overall portfolio compared with a fund holding fewer, larger positions.

Bandhan Increased Holdings in Banking and Financial Companies

An August-to-September portfolio comparison shows that Bandhan increased its shareholding in several financial companies. The fund added approximately 51.79 lakh shares of Power Finance Corporation, taking its holding to around 1.03 crore shares, while also purchasing an additional 24.60 lakh shares of HDFC Bank. It increased its investment in Cholamandalam Financial Holdings by approximately 11.82 lakh shares and made further additions to State Bank of India and South Indian Bank. These changes demonstrate that the fund continued allocating capital to financial businesses during the month rather than reducing its exposure across the sector.

Financial companies can benefit from increasing demand for loans, healthy repayments and improving economic activity, but they also face risks associated with interest rates and loan defaults. For example, a bank may report strong loan growth while simultaneously facing pressure on profitability if its borrowing costs rise or more customers struggle to repay their loans. The additional purchases in Bandhan's portfolio show that the manager increased holdings in selected financial companies, but the disclosures do not establish the precise investment rationale. Investors should evaluate these purchases in the context of the fund's overall diversification rather than treating them as recommendations to buy the same stocks.

Why Did Bandhan Keep Nearly 13% of Its Portfolio in Cash?

One of the most interesting characteristics of Bandhan Small Cap Fund was its relatively high cash allocation. At the end of September, approximately 12.98% of the fund's assets were held in cash and cash-equivalent instruments, compared with 13.32% in August. For a fund managing ₹35,856 crore, this represented approximately ₹4,654 crore outside conventional equity holdings. These assets are not necessarily sitting idle in bank accounts, as cash equivalents can include short-term instruments that help manage liquidity while generating some income.

There can be several reasons for maintaining such an allocation, including managing subscriptions and redemptions or preserving the flexibility to invest when suitable opportunities emerge. Cash can reduce the immediate impact of a market decline because that portion of the portfolio is not fully exposed to stock-price movements. However, it can also limit returns when equity markets rally sharply, as the cash portion does not participate fully in those gains. For investors, the important question is whether the manager can deploy this capital effectively over time without compromising the scheme's overall strategy.

What Did Invesco India Smallcap Fund Buy in September 2026?

Invesco India Small Cap Fund attracted estimated inflows of ₹982 crore in September, compared with ₹793 crore in August. Its AUM increased from approximately ₹15,744 crore to ₹16,131 crore despite the scheme recording a monthly return of -3.78%. Unlike Bandhan, Invesco maintained a relatively concentrated portfolio containing just 75 stocks, with its 10 largest holdings representing 34.19% of assets. This means that movements in a smaller group of companies can have a greater influence on the fund's overall performance.

Invesco Added ICICI Bank and Max Financial Services

One of the most notable September developments was Invesco's introduction of 2 financial companies into its portfolio. The scheme purchased approximately 18.21 lakh shares of ICICI Bank, creating a new position worth around ₹241 crore at September-end prices, representing 1.49% of assets. It also established a new investment in Max Financial Services, buying approximately 16.89 lakh shares worth around ₹232 crore, or 1.44% of the portfolio. Unlike increases in existing positions, these purchases represent new company exposures that were not present in the preceding month's portfolio.

The fund also increased its investments in businesses operating outside the banking sector, including Prestige Estates Projects, Max Healthcare and Go Digit General Insurance. Its Prestige Estates holding increased by approximately 7.52 lakh shares, while Max Healthcare saw an addition of around 5.96 lakh shares. In Go Digit General Insurance, the fund increased its holding by approximately 35.10 lakh shares during September. These additions brought exposure to different businesses, but further monthly disclosures would be required to determine whether the changes represent a sustained shift in the fund's investment strategy.

Why Is Invesco Buying Large Companies in a Small Cap Fund?

Investors may wonder why a small-cap fund is investing in a large company such as ICICI Bank, but this is permitted under the category's regulatory framework. According to SEBI's mutual fund categorisation rules, a small-cap fund must invest at least 65% of its assets in small-cap companies. The remaining portion can be allocated to other permitted investments, subject to the scheme's investment objectives and restrictions. This flexibility allows small-cap managers to include larger companies for diversification, liquidity management or other portfolio considerations without changing the scheme's category.

Invesco had approximately 65.79% of its portfolio invested in small-cap stocks during September, while mid-cap companies represented 15.61% and large-cap companies accounted for 14.97%. This explains how the fund could introduce ICICI Bank while continuing to operate as a small-cap scheme. The allocation outside small companies can make a meaningful difference when comparing funds, particularly during periods when different market-cap segments perform differently. Investors should therefore examine the actual portfolio allocation rather than assuming every small-cap fund invests almost entirely in smaller businesses.

Invesco Reduced Its Cash Allocation Sharply

Another important change was the decline in Invesco's cash and cash-equivalent allocation from approximately 4.76% in August to 1.10% in September. For a scheme managing around ₹16,131 crore, the September allocation represented approximately ₹177 crore in cash and equivalent instruments. Compared with Bandhan's nearly 13% allocation, Invesco had considerably less of its portfolio outside equity investments. This left the fund more fully exposed to stock-market movements at the end of September, although the exact reasons for the decline in cash cannot be determined from allocation data alone.

A relatively low cash allocation can support returns when the fund's underlying equities perform strongly because a larger proportion of assets participates in the rally. However, it can also increase exposure to market declines, particularly when the portfolio is concentrated in a smaller number of companies. Invesco's combination of low cash and higher stock concentration therefore creates a different investment profile from Bandhan's approach. Neither strategy is automatically superior, as their success depends on future market conditions and the performance of the companies selected.

What Did Nippon India Small Cap Fund Buy and Sell in September?

Nippon India Small Cap Fund received estimated net inflows of ₹750 crore in September, broadly similar to the ₹757 crore recorded in August. With an AUM of approximately ₹80,906 crore, it remained substantially larger than both Bandhan and Invesco. However, the fund's assets declined from ₹82,580 crore in August despite positive estimated inflows, as its investments recorded a monthly decline of 2.94%. This demonstrates how market losses can outweigh incoming investor money even in a large and established mutual fund scheme.

One of Nippon's most distinctive characteristics was the broad diversification of its investment portfolio. The fund held approximately 256 stocks at September-end, with its 10 largest investments accounting for just 14.52% of total assets. This is considerably lower than Invesco's top-10 concentration of 34.19%, indicating that Nippon spread its investments much more widely across individual companies. The approach can limit dependence on a few stocks, although it does not eliminate the risks associated with investing in smaller businesses.

Nippon Added Tata Steel and Increased Kotak Mahindra Bank

The September disclosures show that Nippon made selective additions to its portfolio rather than substantially changing its entire investment structure. It established a new position in Tata Steel, holding approximately 72.21 lakh shares worth around ₹133 crore at September-end prices. The fund also increased its investment in Kotak Mahindra Bank by approximately 44.70 lakh shares, taking its total holding to around 1.30 crore shares. These investments illustrate how a small-cap fund can maintain positions in large companies while continuing to meet the category's minimum small-cap allocation requirement.

Other portfolio changes included an addition of approximately 16.31 lakh shares of Hindustan Unilever and increased exposure to RHI Magnesita India. At the same time, Nippon reduced its holding in Jio Financial Services by approximately 74.74 lakh shares during September. These purchases and reductions suggest selective adjustments to individual company exposures rather than a broad portfolio restructuring. For investors, the changes are useful for tracking how the manager deploys capital, but they should not be interpreted as definitive predictions about the future performance of those companies.

Which Stocks Have the Highest Weight in Nippon Small Cap Fund?

Nippon's largest September investments were spread across several industries, including electrical equipment, manufacturing, banking and renewable energy. TD Power Systems accounted for approximately 1.88% of the fund's assets, followed by Bharat Heavy Electricals at 1.77% and HDFC Bank at 1.75%. Apar Industries represented another 1.74%, while Acme Solar Holdings accounted for approximately 1.33%. These relatively small individual allocations help explain why Nippon's portfolio is less dependent on the performance of any 1 company than a more concentrated scheme.

For comparison, Invesco's largest holding, Sai Life Sciences, represented approximately 5.14% of its assets in September. A movement in a holding of that size can influence overall fund returns more strongly than an equivalent percentage movement in a stock representing less than 2% of another portfolio. However, holding a large number of companies does not guarantee protection during a broad small-cap correction because many stocks can decline together. Nippon's diversification primarily reduces dependence on individual company outcomes rather than eliminating the market risks shared by smaller businesses.

Bandhan vs Invesco vs Nippon Small Cap Funds, Which Portfolio Is More Diversified?

The biggest differences between the 3 funds become visible when comparing their portfolio allocations, number of holdings and cash positions. Bandhan maintained a diversified portfolio with significant cash reserves, while Invesco had a more concentrated portfolio and was almost fully invested in the market. Nippon managed the largest asset base and spread its investments across a very large number of companies. All 3 invested a substantial proportion of assets in smaller businesses, but the way they managed the remaining portfolio was different.

The comparison is based on ACE MF portfolio classifications for September 2026, with any remaining assets reflecting other permitted investments or differences in classification. Bandhan's portfolio combines a large number of stocks with a substantial cash position, potentially giving the manager greater flexibility during periods of volatility. Invesco's smaller portfolio means that stock selection and the performance of its largest investments can have a greater influence on returns. Nippon follows a broader diversification approach, although its very large AUM introduces different considerations when investing in less liquid small-cap companies.

Does Holding More Stocks Make a Small Cap Fund Safer?

A common assumption among mutual fund investors is that holding more stocks automatically makes a fund safer, but the relationship is more complicated. If a fund owns 250 companies, a sharp decline in 1 relatively small holding may affect overall returns less than it would in a portfolio with 40 companies and larger individual positions. This is one advantage of broad diversification, especially when individual businesses experience unexpected problems. However, spreading money across more stocks does not protect investors from risks that affect the entire small-cap market.

During a broad correction, many smaller companies can decline simultaneously because of expensive valuations, weaker earnings or concerns about market liquidity. Even a portfolio containing 250 stocks may experience substantial losses if investors become less willing to own smaller businesses. Conversely, a concentrated fund may outperform when its strongest investment ideas perform particularly well, although the same concentration can amplify the effect of poor stock selection. Investors should therefore examine both portfolio concentration and the quality of underlying companies instead of treating the number of holdings as a measure of safety.

How Does Fund Size Affect Small Cap Mutual Fund Investments?

Another major difference between these schemes is the amount of money they manage, which can influence how easily a fund manager builds positions in smaller companies. Nippon's September AUM was approximately ₹80,906 crore, compared with ₹35,856 crore for Bandhan and ₹16,131 crore for Invesco. While a larger AUM can reflect investor participation and the growth of a scheme, it also means that the manager may need to deploy substantial amounts of money to create meaningful portfolio positions. This can become particularly challenging when the underlying stocks have relatively low trading volumes.

Consider a simple example in which each fund wants to allocate 1% of its assets to a particular company. Nippon would need to invest approximately ₹809 crore, while Invesco would require around ₹161 crore for the same percentage allocation. Buying ₹809 crore worth of shares in a smaller company may be considerably more difficult without influencing its market price, particularly when daily trading volumes are limited. The same challenge can arise when a large fund wants to sell a substantial investment, especially during a period of market stress.

This can encourage larger small-cap funds to spread their investments across more companies or maintain some exposure to larger, more liquid businesses within the permitted allocation. However, fund size alone does not determine investment performance, and a smaller fund is not automatically better equipped to outperform the market. The quality of the investment process, trading discipline, liquidity management and stock selection remain important. For investors, AUM is therefore a factor to understand alongside portfolio concentration and the underlying companies rather than a standalone reason to choose or avoid a scheme.

Why Are Small Cap Mutual Fund Risks Higher Than Large Cap Funds?

Small-cap funds primarily invest in companies ranked outside India's 250 largest listed businesses by market capitalisation, as defined under the applicable classification framework. Some of these businesses can grow rapidly because they are expanding from a relatively small revenue or profit base. However, their earnings may also be less predictable, especially when operations depend on a limited number of customers, products or projects. This combination of potential growth and greater business uncertainty is one reason small-cap investments can experience significant fluctuations in value.

For example, a smaller manufacturing company could report rapid earnings growth after receiving major orders or successfully expanding production. However, delays in those orders, rising borrowing costs or weaker customer demand could have a substantial impact on profitability and investor expectations. The resulting changes in share prices can be sharper than those typically seen in larger, more established companies. Investors should therefore consider whether they can tolerate prolonged periods of negative returns before allocating a substantial part of their portfolios to small-cap funds.

Liquidity creates another important risk because smaller company shares may trade in relatively low volumes. When many investors want to sell at the same time, finding buyers at reasonable prices can become difficult, potentially causing sharper declines. This is particularly relevant for large mutual funds managing thousands of crores of rupees, as significant redemption requests may require managers to sell securities during unfavourable market conditions. Investors can review fund-house liquidity stress-test disclosures to understand estimated liquidation periods, while remembering that these calculations are based on assumptions rather than guarantees.

Should Investors Choose Bandhan, Invesco or Nippon Based on September Inflows?

September's inflow figures do not establish that any 1 scheme is the best small-cap mutual fund for every investor. Bandhan attracted the highest estimated inflows and recorded the smallest decline among these funds during the month, but its strategy also included a substantial cash allocation. Invesco delivered the strongest 6-month return, although its relatively concentrated portfolio experienced the steepest decline in September. Nippon maintained the largest AUM and the lowest concentration in its 10 largest holdings, but investors still faced the risks associated with small-cap equities.

The differences show why comparing mutual funds requires more than checking recent returns or the amount of money entering each scheme. Investors should also consider how the manager selects stocks, the proportion invested in cash, portfolio concentration and the potential difficulty of buying or selling underlying holdings. A strategy that works well during a rising market may behave differently during a prolonged correction, particularly when liquidity becomes limited. Understanding these characteristics helps investors evaluate whether a scheme is suitable for their financial goals and investment horizon.

Investors should also remember that holding multiple small-cap funds does not necessarily create meaningful diversification across asset classes. Even if Bandhan, Invesco and Nippon own different stocks, they remain exposed to the same broad segment of smaller listed businesses. A portfolio containing all 3 funds could therefore experience substantial losses during a widespread small-cap market correction. Diversification should be evaluated across asset classes, sectors, market-cap segments and underlying companies rather than simply by counting the number of mutual fund schemes owned.

What Should Investors Learn From the September Small Cap Fund Portfolios?

September 2026 demonstrated that small-cap mutual funds can attract substantial investor money even during periods of negative returns. However, the portfolios of Bandhan, Invesco and Nippon reveal that fund managers use very different approaches within the same category. Bandhan maintained nearly 13% in cash while adding financial stocks, Invesco introduced new banking and insurance holdings within a concentrated portfolio, and Nippon continued managing a widely diversified portfolio while making selective purchases and reductions. These decisions highlight the importance of understanding where a fund invests rather than relying only on its category or popularity.

For retail investors, the biggest takeaway is that the small-cap label alone does not explain how a fund is managed or how much risk it carries. Portfolio concentration, cash allocation, fund size, liquidity and the quality of underlying businesses can all influence returns across different market conditions. Rather than treating September's large inflows as a signal to invest, investors should use portfolio disclosures to understand what they actually own and whether that exposure fits their long-term financial goals. The right mutual fund evaluation begins with understanding its strategy and risks, not simply following the scheme that attracted the most money.