You’ve likely seen the headlines lately. Small-cap stocks in India have been through a bit of a blender in 2025. Honestly, it’s been a rough ride. After the massive rallies of 2023 and 2024, the Nifty Smallcap 100 index took a 7% hit last year, making it the worst performance since 2022. But right in the middle of this chaos sits the Motilal Oswal Small Cap Fund, a relatively new player that launched in late 2023.
Most people see "Small Cap" and think of lottery-ticket returns. Or they see a red month and want to pull everything out. Both are kinda wrong. Investing in small companies isn't about gambling; it’s about finding the "hidden" businesses that have the legs to become the next blue chips. But doing that when the market is dropping 9% in six months? That takes some serious nerve.
✨ Don't miss: Exchange Rate of US Dollar to Sri Lanka Rupee: Why 310 is the New Magic Number
Why the Motilal Oswal Small Cap Fund isn't your average small-cap bet
Most small-cap funds try to spray and pray. They buy 80, 90, sometimes over 100 stocks, hoping a few of them moon. But the Motilal Oswal Small Cap Fund feels a bit different. As of early 2026, the fund holds around 52 to 53 stocks. That’s a concentrated list for this category. It tells you the fund managers—Ajay Khandelwal, Niket Shah, and Rakesh Shetty—aren't just buying the index. They’re picking sides.
Basically, they use this philosophy called QGLP.
- Quality (of business and management)
- Growth (in earnings)
- Longevity (of the competitive advantage)
- Price (buying at a reasonable valuation)
It sounds like marketing fluff, right? But look at their top holdings. You’ve got names like Dr. Agarwal’s Health Care, Karur Vysya Bank, and CCL Products. These aren't exactly household names like Reliance or HDFC, but they are leaders in their specific, often niche, corners of the market.
The numbers you actually care about
Let's talk money. As of January 14, 2026, the Direct Plan NAV is hovering around ₹13.77. If you look at the 1-year return, it’s actually sitting in the negative—somewhere around -5.9%.
Wait, why would anyone buy that?
Well, look at the benchmark (Nifty Smallcap 250 TRI). The whole sector has been bleeding. In fact, many peers have seen even sharper drawdowns. The fund has an Assets Under Management (AUM) of roughly ₹5,837 crore. It’s not a giant like Nippon India Small Cap (which is over ₹68,000 crore), but it’s grown fast since its launch.
The expense ratio is another thing to watch. For the Direct plan, you’re looking at about 0.67%. If you’re going through a distributor (the Regular plan), that jumps up to 1.82%. That’s a huge gap. Over 10 years, that 1.15% difference could eat a massive chunk of your final corpus. If you can manage your own account, the direct route is a no-brainer.
What's actually inside the portfolio right now?
The sector allocation is where it gets interesting. While some funds are heavy on risky tech startups, this one has a big tilt toward Services (15.5%), Financials (15.3%), and Capital Goods (16.9%).
They’ve also been making some moves lately:
- Increased stake in Rubicon Research and Thirumalai Chemicals.
- Trimmed positions in V-Mart Retail and Shaily Engineering Plastics.
- Cash holdings are at about 4.8%. This is a "dry powder" strategy—keeping cash ready to buy the dip if the market keeps sliding in 2026.
The risk is real (and "Very High")
Google’s risk-o-meter isn't lying when it labels this "Very High Risk." Small-cap companies are volatile. One bad earnings report and a stock can drop 20% in a week. Motilal Oswal recently had to stop new investments in their Microcap index fund because of SEBI concerns about the category. While this Small Cap fund is still open, it reminds you that the regulator is watching this space closely.
If you’re the type of person who checks their portfolio every morning and gets a stomach ache when it's red, stay away. Seriously. Small caps are for people who can lock their money away for at least 7 years.
Comparing the field: How does it stack up?
You've got a lot of choices in the small-cap world. Quant Small Cap is the aggressive, high-turnover king. Nippon India is the diversified veteran. So where does Motilal Oswal fit?
| Feature | Motilal Oswal Small Cap | Quant Small Cap | Nippon India Small Cap |
|---|---|---|---|
| Strategy | High Conviction / QGLP | Predictive / Momentum | Growth at Reasonable Price |
| AUM (approx) | ₹5,837 Cr | ₹29,784 Cr | ₹68,287 Cr |
| 1Y Return (Jan '26) | ~ -6% | ~ -0.6% | ~ -3.4% |
| Expense Ratio (Dir) | 0.67% | 0.62% | 0.65% |
Actually, 2025 was a "great leveler." Almost everyone underperformed. The "alpha"—the extra return over the benchmark—has been hard to find. But the advantage of a smaller AUM (like Motilal's ₹5.8k Cr) is agility. It’s easier for them to enter and exit positions in small stocks without moving the market price too much.
Is 2026 the year for a comeback?
Analysts are currently split. Some, like those at Equitymaster, point out that many small caps are down 30% to 50% from their highs. They argue that if you pick companies with clear expansion plans and steady margins, you’re buying at a massive discount.
Others warn that 40% of small-cap companies missed their earnings expectations in late 2025. If the profits don't show up, the stock prices won't either. The Motilal Oswal Small Cap Fund is betting on a "bottom-up" recovery—meaning they don't care about the whole market as much as they care about the specific 50 companies they own.
📖 Related: 80 20 sales & marketing: What Most People Get Wrong About Scaling Fast
Practical steps for you
If you’re thinking about jumping in or already have money in the fund, here’s how to handle it:
- Don't Lumpsum: The market is still "kinda" shaky. Instead of putting ₹1 lakh in today, break it into 12 parts and do an SIP (Systematic Investment Plan).
- Check Your Overlap: If you already own a Mid Cap fund from Motilal Oswal, check if they’re buying the same stocks. You don't want to be double-exposed to the same companies.
- Watch the Exit Load: If you pull your money out within 365 days, they’ll charge you 1%. This isn't for "tactical" trading.
- The 20% Rule: Most financial planners suggest keeping small caps to about 15-20% of your total equity portfolio. The rest should probably be in more stable Large or Flexi-cap funds.
Small-cap investing is a test of patience. The Motilal Oswal Small Cap Fund has the pedigree of a house that knows how to pick winners, but even they can't fight a gravity-defying market forever. If you believe in the India growth story for the next decade, these dips are just noise. If you need the money for a wedding in two years? Get out now.
Actionable Next Steps:
- Verify your current asset allocation; ensure small-caps do not exceed 20% of your total portfolio.
- Compare the Direct vs. Regular plan of this fund using an online calculator to see the long-term impact of the 1.15% expense ratio difference.
- Set up an SIP of at least ₹500 (the minimum for this fund) to benefit from rupee-cost averaging during the current market volatility.