Archive · 25 Aug 2026
Benchmark Overlap Does Not Predict Small-Cap Fund Returns
Benchmark overlap shows how much a fund owns the same stocks as its comparison index.
A high overlap means the fund looks more like its benchmark.
A low overlap means the manager is making more different stock choices.
The data does not show that high overlap always produces bad returns.
Union Small Cap Fund had 26.6% overlap and returned 23.3% in one year.
The data also does not show that low overlap always produces good returns.
Tata Small Cap Fund had the lowest overlap but lost 0.8%.
This means overlap is only one way to understand a fund and cannot by itself predict performance.
The five funds with the highest benchmark overlap ranged from 26.6% to 32.7%.
Axis Small Cap Fund had the highest overlap at 32.7% and a 11.8% one-year return.
Union Small Cap Fund returned 23.3%, the strongest result among the high-overlap funds.
The five lowest-overlap funds ranged from 6.8% to 13.1% overlap.
Tata Small Cap Fund had the lowest overlap at 6.8% but returned -0.8%, while Bank of India Small Cap Fund returned 27.9% with 12.9% overlap.
- Who
- The 10 small-cap funds analyzed by Value Research.
- What
- The analysis compared benchmark overlap with one-year returns.
- When
- Portfolio disclosures were from July 2026, and returns were measured through 20 August 2026.
- Where
- The funds were compared against the Nifty Smallcap 250 TRI or BSE 250 SmallCap TRI.
- Why
- To examine whether funds that differ more from their benchmarks deliver better returns.
What Lower Overlap May Suggest
What the Results Show
Active stock selection
What Lower Overlap May Suggest
A lower benchmark overlap indicates that a fund is positioned more differently from its benchmark, giving its manager greater scope to make active stock-selection and allocation decisions.
What the Results Show
Greater deviation from the benchmark does not automatically produce better returns; Tata Small Cap Fund had the lowest overlap at 6.8% but returned -0.8%.
Relationship between overlap and performance
What Lower Overlap May Suggest
Investors may expect funds with lower overlap to have more potential to generate alpha through differentiated positions.
What the Results Show
The results show no consistent link between overlap and returns. Bank of India Small Cap Fund returned 27.9% with 12.9% overlap, while Union Small Cap Fund returned 23.3% with a higher 26.6% overlap.
Interpreting high overlap
What Lower Overlap May Suggest
A high overlap can mean that a fund resembles its benchmark more closely and makes fewer differentiated bets.
What the Results Show
High overlap did not necessarily mean weaker performance: Union Small Cap Fund had the second-highest return in the 10-fund comparison despite its relatively high overlap.
- Highest overlap range
- 26.6% to 32.7%
- Lowest overlap range
- 6.8% to 13.1%
- Highest one-year return
- Bank of India Small Cap Fund: 27.9%
- Highest return among high-overlap funds
- Union Small Cap Fund: 23.3%
- Lowest one-year return
- Tata Small Cap Fund: -0.8%
- Highest benchmark overlap
- Axis Small Cap Fund: 32.7%
- Data source
- Value Research; July 2026 portfolio disclosures; returns through 20 August 2026