Best Small Cap Mutual Funds in August 2026

Last Reviewed and Updated: 17 Aug 2026

A data driven ranking of 34 direct growth small cap schemes, based on fund data dated 17 August 2026

Small cap mutual funds invest at least 65% of their assets in companies ranked 251st or lower by market capitalisation on Indian exchanges, with the remaining 35% available for broader allocation at the manager's discretion.

The small cap universe spans thousands of companies across every sector and size range from nascent businesses to established firms just outside the mid cap threshold. This breadth makes it the equity category with the highest degree of differentiation between fund managers, and the data in this article makes that differentiation starkly visible.

This article analyses 34 direct growth small cap schemes using data dated 17 August 2026. Of the 34 funds, 24 have a 3 year return and 23 have a 5 year return, with 10 funds too recently launched to have either. The 3 year category benchmark return is 18.10% and the 5 year benchmark return is 16.43%.

The benchmark figures are essential context: of the 24 funds with 3 year data, 13 fall below the 3 year benchmark. More than half the small cap funds with a track record have failed to beat a passive index over the most recent 3 year period.

The ability to identify the funds that have outperformed is therefore not merely a matter of performance optimisation but of avoiding a category where the median active manager has delivered sub index returns.

The Benchmark Divide: A Category of Two Halves

The 3 year benchmark of 18.10% splits the 24 funds with data into two groups of nearly equal size: 11 funds that have beaten the benchmark by meaningful margins, and 13 that have not. This is an unusually high failure rate relative to the other categories reviewed in this series.

The explanation lies partly in the scale problem: many of the largest and most recognised small cap funds have seen their AUM grow to levels that constrain their ability to build concentrated positions in genuinely small companies, effectively pushing them toward larger, more liquid holdings that converge with the mid cap universe and dilute the category's return potential.

The 5 year benchmark of 16.43% is somewhat easier to clear, with 17 of the 23 funds with data exceeding it. But over 5 years the underperformers include very large funds managing tens of thousands of crores and charging active management fees for what has effectively been index equivalent or sub index performance.

How These Funds Were Ranked

Rankings are shown side by side for 3 year and 5 year annualised returns. Seven funds appear in the top 10 of both tables: Bandhan Small Cap Fund, Bank of India Small Cap Fund, DSP Small Cap Fund, ITI Small Cap Fund, Invesco India Smallcap Fund, LIC MF Small Cap Fund, and Quant Small Cap Fund.

These seven represent the category's most sustained performers across both periods, though LIC MF's 1.44% expense ratio requires a specific note. Expense ratio, AUM, and 3 year Sharpe ratio are included throughout.

Top 10 Small Cap Funds: 3 Year vs 5 Year Rankings

Ranked by 3 Year Annualised Return

Rank	Fund	3Y Return	AUM
1	Bandhan Small Cap Fund	27.19%	₹28,466.18 Cr
2	ITI Small Cap Fund	26.86%	₹3,454.00 Cr
3	Invesco India Smallcap Fund	24.89%	₹14,474.79 Cr
4	Bank of India Small Cap Fund	24.07%	₹2,819.49 Cr
5	Mahindra Manulife Small Cap Fund	22.56%	₹5,086.57 Cr
6	LIC MF Small Cap Fund	20.52%	₹758.09 Cr
7	Union Small Cap Fund	19.90%	₹2,267.79 Cr
8	Sundaram Small Cap Fund	19.45%	₹3,922.31 Cr
9	DSP Small Cap Fund	19.33%	₹20,220.75 Cr
10	Quant Small Cap Fund	18.92%	₹34,068.88 Cr

24 of 34 funds have a 3 year return. NA* indicates no 5 year track record. The 3 year benchmark is 18.10%, which all 10 funds above have beaten. LIC MF Small Cap Fund's 1.44% expense ratio is noted as the highest among funds with a return track record.

Ranked by 5 Year Annualised Return

Rank	Fund	5Y Return	AUM
1	Bank of India Small Cap Fund	21.21%	₹2,819.49 Cr
2	Invesco India Smallcap Fund	21.09%	₹14,474.79 Cr
3	Bandhan Small Cap Fund	20.32%	₹28,466.18 Cr
4	Nippon India Small Cap Fund	20.26%	₹78,956.77 Cr
5	Quant Small Cap Fund	19.85%	₹34,068.88 Cr
6	ITI Small Cap Fund	19.42%	₹3,454.00 Cr
7	LIC MF Small Cap Fund	19.40%	₹758.09 Cr
8	DSP Small Cap Fund	19.02%	₹20,220.75 Cr
9	Edelweiss Small Cap Fund	18.94%	₹6,817.93 Cr
10	HSBC Small Cap Fund	18.91%	₹17,783.74 Cr

23 of 34 funds have a 5 year return. The 5 year benchmark is 16.43%, which all 10 funds above have exceeded. LIC MF's 1.44% expense ratio means its net return after cost is materially lower than its gross return ranking suggests.

A Closer Look at the Top Performers

1. Bandhan Small Cap Fund: Leads on Returns, Cost, and Risk Control

Bandhan Small Cap Fund, managed by Manish Gunwani, leads the 3 year return table at 27.19%, the highest Sharpe ratio in the category at 0.97, and the second lowest expense ratio among funds with a track record at 0.35%.

It also ranks 3rd on the 5 year table at 20.32%. This combination of the strongest 3 year returns alongside the best risk adjusted score and near lowest cost at an AUM of Rs 28,466.18 Cr is exceptional by any measure.

A Sharpe ratio above 0.90 in a small cap fund, where structural volatility is high, indicates the returns have been achieved with disciplined risk management rather than unconstrained concentration.

2. Bank of India Small Cap Fund: Leads the 5 Year Table

Bank of India Small Cap Fund, managed by Alok Singh, leads the 5 year return table at 21.21%, ranking 4th by 3 year return at 24.07%. It carries an expense ratio of 0.45% and a Sharpe ratio of 0.74.

At Rs 2,819.49 Cr in AUM, it is one of the smaller funds with a proven dual horizon track record, which may partly explain its ability to take concentrated positions in genuinely small companies without the liquidity constraints that affect larger peers.

The combination of first by 5 years, fourth by 3 years, and near lowest cost makes Bank of India Small Cap Fund one of the most consistently strong options in the category.

3. Invesco India Smallcap Fund: Most Complete Profile Across All Metrics

Invesco India Smallcap Fund, managed by Taher Badshah, ranks 3rd by 3 year return (24.89%), 2nd by 5 year return (21.09%), and 3rd by Sharpe ratio (0.87).

Its expense ratio of 0.42% is among the lowest in the category for a fund with a proven dual horizon track record, and its AUM of Rs 14,474.79 Cr is well suited for the small cap universe.

On the complete combination of return on both horizons, risk adjusted performance, and cost, Invesco India Smallcap Fund is the most comprehensively strong option in this data set.

4. ITI Small Cap Fund: Highest Return Among Smaller Funds, Strong Risk Adjusted Score

ITI Small Cap Fund, managed by Dhimant Shah, ranks 2nd by 3 year return (26.86%) and 6th by 5 year return (19.42%), with the second highest Sharpe ratio among equity small cap funds at 0.92. Its expense ratio of 0.84% is moderate for the category, and its AUM of Rs 3,454.00 Cr is appropriate for active small cap management.

The strong Sharpe ratio alongside the second highest 3 year return indicates ITI has earned its returns with genuine stock selection rather than simply riding market momentum, which is a particularly meaningful signal in a volatile category.

5. Nippon India Small Cap Fund: 5 Year Strength, 3 Year Constraint

Nippon India Small Cap Fund, managed by Samir Rachh, ranks 4th by 5 year return (20.26%) but only 13th by 3 year return (17.80%), which is below the 18.10% benchmark. At Rs 78,956.77 Cr in AUM, it is the largest fund in the entire small cap category by an enormous margin.

Managing this volume in the small cap universe, where individual company liquidity is limited, is a structural constraint that increasingly forces the manager toward larger companies within the small cap definition, effectively diluting the portfolio's small cap character.

The 5 year leadership reflects a period before AUM grew to its current level. The 3 year underperformance relative to the benchmark, despite charging active management fees, is the more relevant signal for investors considering this fund today.

Best Risk Adjusted Returns: Highest Sharpe Ratio

Fund	3Y Sharpe Ratio	3Y Return
Bandhan Small Cap Fund	0.97	27.19%
ITI Small Cap Fund	0.92	26.86%
Invesco India Smallcap Fund	0.87	24.89%
Mahindra Manulife Small Cap Fund	0.79	22.56%
Bank of India Small Cap Fund	0.74	24.07%
Union Small Cap Fund	0.67	19.90%

All six funds in the Sharpe table have also delivered 3 year returns above 19%, confirming that the best risk adjusted performers in small cap have simultaneously been the best absolute return generators.

Sharpe ratios above 0.80 are notable for any equity category but particularly impressive in small cap, where the structural volatility of the underlying stocks typically produces lower Sharpe scores than in large cap or flexi cap funds.

The top three funds, Bandhan (0.97), ITI (0.92), and Invesco India (0.87), form a clear cluster of superior risk adjusted performers that separates them from the rest of the category.

Lowest Cost Small Cap Funds

Fund	Expense Ratio
Mirae Asset Small Cap Fund	0.34%
Bandhan Small Cap Fund	0.35%
Tata Small Cap Fund	0.40%
Invesco India Smallcap Fund	0.42%
Mahindra Manulife Small Cap Fund	0.43%
Canara Robeco Small Cap Fund	0.44%
Bank of India Small Cap Fund	0.45%

NA* indicates no return data available.

Mirae Asset Small Cap Fund at 0.34% is the cheapest fund in the category but has no return history for comparison. Among funds with established performance, Bandhan Small Cap Fund at 0.35% pairs the lowest cost with the highest returns in the category, a combination that is exceptionally rare.

Invesco India at 0.42% and Bank of India at 0.45% offer the next best combination of low cost and proven dual horizon returns. Tata Small Cap Fund is notable for having the third lowest expense ratio at 0.40% while delivering only 13.39% over 3 years, nearly 5 percentage points below the 18.10% benchmark.

Low cost is not sufficient if the manager cannot deliver returns above the index. Canara Robeco at 0.44% faces a similar problem, delivering 15.22% over 3 years against an 18.10% benchmark.

The Largest Small Cap Funds by AUM

The small cap category has a severe scale problem that the data makes explicit. The three largest funds by AUM are also three of the weakest performers over the 3 year period.

Fund	AUM
Nippon India Small Cap Fund	₹78,956.77 Cr
HDFC Small Cap Fund	₹41,679.00 Cr
SBI Small Cap Fund	₹39,954.73 Cr
Quant Small Cap Fund	₹34,068.88 Cr
Axis Small Cap Fund	₹30,088.59 Cr
Bandhan Small Cap Fund	₹28,466.18 Cr

The AUM table reveals the most striking pattern in this data set. Nippon India (Rs 78,956.77 Cr), HDFC (Rs 41,679.00 Cr), and SBI (Rs 39,954.73 Cr), the three largest funds in the category, all deliver 3 year returns below the 18.10% benchmark: Nippon India at 17.80%, HDFC at 13.50%, and SBI at 13.83%.

HDFC and SBI are not just below the benchmark; they are 4 to 5 percentage points below it, which is a very large sustained underperformance gap for funds charging active management fees.

Both also deliver below the 5 year benchmark of 16.43% (HDFC at 16.31%, SBI at 15.76%), confirming that the underperformance is not a short term anomaly. Axis Small Cap Fund (Rs 30,088.59 Cr) delivers 17.78% over 3 years, also below benchmark.

Bandhan at Rs 28,466.18 Cr is the only fund in the largest six delivering returns in line with or above the benchmark on both horizons, at the lowest cost in the group.

Funds Failing to Clear the Benchmark

With 13 of 24 funds below the 3 year benchmark of 18.10%, this section names each one explicitly. Several are among the most recognised and widely held small cap funds in India.

Fund	3Y Return	Gap vs Benchmark
Tata Small Cap Fund	13.39%	-4.71%
HDFC Small Cap Fund	13.50%	-4.60%
ICICI Prudential Smallcap Fund	13.81%	-4.29%
SBI Small Cap Fund	13.83%	-4.27%
Kotak Small Cap Fund	14.29%	-3.81%
Canara Robeco Small Cap Fund	15.22%	-2.88%
Franklin India Small Cap Fund	15.80%	-2.30%
UTI Small Cap Fund	16.90%	-1.20%
HSBC Small Cap Fund	17.09%	-1.01%
Aditya Birla Sun Life Small Cap Fund	17.68%	-0.42%
Axis Small Cap Fund	17.78%	-0.32%
Nippon India Small Cap Fund	17.80%	-0.30%
PGIM India Small Cap Fund	18.05%	-0.05%

The combined AUM of the 13 underperforming funds exceeds Rs 2,50,000 Cr. These funds are actively managing a very large pool of investor savings while delivering below the return an investor would have received from a passive small cap index fund at a lower cost.

HDFC Small Cap Fund and SBI Small Cap Fund are the most significant cases: both manage over Rs 39,000 Cr and have underperformed the 3 year benchmark by more than 4 percentage points annually.

PGIM India Small Cap Fund at 0.05% below the benchmark and Nippon India at 0.30% below are marginal underperformers relative to the benchmark, but both charge active management fees for outcomes that a passive fund would have provided.

LIC MF Small Cap Fund: The Cost Warning

LIC MF Small Cap Fund is the only fund other than Samco with an expense ratio above 1.0%, at 1.44%. It delivers a 3 year return of 20.52%, which is above the 18.10% benchmark, and ranks 7th by 5 year return at 19.40%. On gross returns it appears in both top 10 tables and would seem like a solid performer.

However, its 1.44% expense ratio is approximately three times the cost of Bandhan (0.35%) or Invesco India (0.42%), which deliver substantially stronger gross returns.

The net return difference between LIC MF and lower cost peers widens further once costs are deducted, and over a 10 to 15 year holding period the compounding effect of this cost gap is very significant.

Investors in LIC MF Small Cap should verify whether the current direct plan expense ratio remains at 1.44%, as this level is unusually high for a direct plan in this category.

What These Funds Actually Hold

Small cap funds have broader and more varied portfolios than any other equity category. With SEBI mandating at least 65% in companies ranked 251st or lower by market cap, fund managers have access to thousands of eligible stocks across every sector.

The resulting portfolios differ far more between funds than in large cap or even mid cap categories.

The top performing funds in this data set, particularly Bandhan, ITI, Invesco India, and Bank of India, tend to run more concentrated portfolios with higher conviction in specific industrial, healthcare, specialty chemical, consumer discretionary, and financial services names outside the top 250 companies.

Funds with weaker returns, such as HDFC, SBI, and Axis, tend to hold broader portfolios with more positions and smaller individual weights, which reduces the impact of any single strong performer and has contributed to their convergence toward benchmark level returns.

The mandate to hold at least 65% in small cap stocks forces managers at very large AUM funds toward larger companies at the boundary of the small cap and mid cap definitions, which further dilutes their exposure to the genuinely small companies where the category's excess return potential resides.

Things to Consider Before Investing

• 13 of 24 small cap funds with data are below the 3 year benchmark of 18.10%. Fund selection in this category is not optional: choosing a fund without checking its benchmark comparison can result in an outcome worse than a passive small cap index fund, which is available from reputable fund houses at substantially lower cost.

• Bandhan Small Cap Fund, Invesco India Smallcap Fund, and Bank of India Small Cap Fund form the most defensible top tier. All three rank in the top 4 on both the 3 year and 5 year tables, carry expense ratios below 0.50%, and have Sharpe ratios above 0.70. No other funds in the category combine all these attributes.

• HDFC Small Cap Fund (Rs 41,679 Cr) and SBI Small Cap Fund (Rs 39,954 Cr) are the two most important cases for investors to review. Both manage very large AUM, charge active management fees, and have delivered 3 year returns approximately 4 to 4.6 percentage points below the benchmark. If you hold either fund, the case for switching to a higher performing peer or a passive small cap index fund is supported by the data.

• Nippon India Small Cap Fund (Rs 78,956.77 Cr) leads the 5 year table but is below the 3 year benchmark. Its AUM is more than double the second largest fund, Quant at Rs 34,069 Cr. Investors in Nippon India should monitor whether the 3 year underperformance is a temporary phase or a structural consequence of the fund's scale.

• LIC MF Small Cap Fund's 1.44% expense ratio warrants scrutiny. Its gross returns place it in both top 10 tables, but net of its cost the advantage over lower cost peers narrows substantially. Verify the current direct plan expense ratio before investing.

• Small cap funds require a minimum 5 to 7 year investment horizon. Drawdowns of 40% to 55% are part of the historical experience of this category during market corrections. Investors who cannot hold through these periods without redeeming should not be in this category regardless of fund selection.

• Ten funds have no return history: Samco, Mirae Asset, Baroda BNP Paribas, Bajaj Finserv, Quantum, Motilal Oswal, JM, Groww, Helios, and TrustMF. Of these, TrustMF (0.45%, Rs 2,859.82 Cr) and Mirae Asset (0.34%, Rs 4,842.22 Cr) are the most attractively priced and from credible operational backgrounds. Motilal Oswal has accumulated Rs 7,604.53 Cr in AUM despite having no return data, reflecting brand driven inflows ahead of a verifiable track record.

Full Fund Universe: Quick Reference

Fund	3Y Return	5Y Return	Expense Ratio	AUM
Bandhan Small Cap Fund	27.19%	20.32%	0.35%	₹28,466.18 Cr
ITI Small Cap Fund	26.86%	19.42%	0.84%	₹3,454.00 Cr
Invesco India Smallcap Fund	24.89%	21.09%	0.42%	₹14,474.79 Cr
Bank of India Small Cap Fund	24.07%	21.21%	0.45%	₹2,819.49 Cr
Mahindra Manulife Small Cap Fund	22.56%	NA*	0.43%	₹5,086.57 Cr
LIC MF Small Cap Fund	20.52%	19.40%	1.44%	₹758.09 Cr
Union Small Cap Fund	19.90%	18.66%	0.80%	₹2,267.79 Cr
Sundaram Small Cap Fund	19.45%	18.23%	0.70%	₹3,922.31 Cr
DSP Small Cap Fund	19.33%	19.02%	0.82%	₹20,220.75 Cr
Quant Small Cap Fund	18.92%	19.85%	0.95%	₹34,068.88 Cr
Edelweiss Small Cap Fund	18.38%	18.94%	0.62%	₹6,817.93 Cr
PGIM India Small Cap Fund	18.05%	14.92%	0.85%	₹1,649.96 Cr
Nippon India Small Cap Fund	17.80%	20.26%	0.54%	₹78,956.77 Cr
Axis Small Cap Fund	17.78%	17.73%	0.74%	₹30,088.59 Cr
Aditya Birla Sun Life Small Cap Fund	17.68%	15.06%	0.77%	₹5,865.30 Cr
HSBC Small Cap Fund	17.09%	18.91%	0.77%	₹17,783.74 Cr
UTI Small Cap Fund	16.90%	17.03%	0.87%	₹5,263.02 Cr
Franklin India Small Cap Fund	15.80%	17.86%	0.77%	₹14,466.52 Cr
Canara Robeco Small Cap Fund	15.22%	17.19%	0.44%	₹14,230.88 Cr
Kotak Small Cap Fund	14.29%	14.62%	0.59%	₹18,932.78 Cr
SBI Small Cap Fund	13.83%	15.76%	0.79%	₹39,954.73 Cr
ICICI Prudential Smallcap Fund	13.81%	15.63%	0.71%	₹9,533.38 Cr
HDFC Small Cap Fund	13.50%	16.31%	0.76%	₹41,679.00 Cr
Tata Small Cap Fund	13.39%	15.49%	0.40%	₹12,695.77 Cr
Samco Small Cap Fund	NA*	NA*	1.58%	₹158.97 Cr
Mirae Asset Small Cap Fund	NA*	NA*	0.34%	₹4,842.22 Cr
Baroda BNP Paribas Small Cap Fund	NA*	NA*	0.80%	₹1,287.55 Cr
Bajaj Finserv Small Cap Fund	NA*	NA*	0.52%	₹2,363.72 Cr
Quantum Small Cap Fund	NA*	NA*	0.70%	₹254.14 Cr
Motilal Oswal Small Cap Fund	NA*	NA*	0.82%	₹7,604.53 Cr
JM Small Cap Fund	NA*	NA*	0.96%	₹809.39 Cr
Groww Small Cap Fund	NA*	NA*	0.62%	₹439.70 Cr
Helios Small Cap Fund	NA*	NA*	0.82%	₹1,455.13 Cr
TrustMF Small Cap Fund	NA*	NA*	0.45%	₹2,859.82 Cr

Table sorted by 3 year return. NA* indicates no data. The 3 year benchmark is 18.10% and the 5 year benchmark is 16.43%. Funds above the dotted divide between PGIM India and Nippon India have beaten the 3 year benchmark; those from Nippon India downward have not. LIC MF Small Cap Fund expense ratio of 1.44% is the highest among funds with a return track record.

This article is based on fund data dated 17 August 2026 and is intended for informational purposes only and is not investment advice. Mutual fund investments are subject to market risks and past performance does not guarantee future returns. Small cap funds carry above average volatility and liquidity risk. LIC MF Small Cap Fund's expense ratio should be verified against current direct plan pricing. Investors should read all scheme related documents carefully and consult a SEBI registered financial advisor before investing.

Disclaimer

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Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing. Past performance is not indicative of future returns. NAV, returns, rankings, and other data may change and may not reflect the most current information at the time of reading.

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