Best Small Cap mutual funds in India 2026
- Mar 25
- 7 min read
Updated: Jul 12
Small cap mutual funds invest a minimum of 65% of their total assets in equity and equity-related instruments of small cap companies, defined by SEBI as companies ranked 251st and below by market capitalisation. These are typically early-stage or niche businesses with significant growth potential but materially higher risk than their large and mid cap counterparts.
These companies include niche manufacturers, regional champions, and emerging sector leaders that haven’t yet appeared on mainstream institutional radar.
Unlike large or mid cap funds, small cap funds carry higher volatility but have historically delivered superior returns over very long time horizons. The trade-off is clear: you accept sharp drawdowns in return for the possibility of compounding at rates that large caps simply cannot match.
India’s economic engine continues to fire on all cylinders in 2026. With GDP growth projected in the 6% to 7% range, small cap companies, which are often more exposed to domestic demand, the formalisation of the economy, and India’s infrastructure expansion, are well positioned.
Small cap companies have the potential to grow revenues and profits at multiples of their large cap peers. A company that grows from Rs 500 crore in market cap to Rs 10,000 crore creates 20 times wealth for investors. The best small cap managers find such companies before the market prices in that potential.
For investors whose portfolios are heavily weighted towards Nifty 50 names, small cap funds provide genuine diversification. The companies are different, the sectors are different, and the risk-return drivers are different. Adding a small cap allocation can improve the overall risk-return profile of an equity portfolio when sized appropriately.
Based on comprehensive analysis of 21 SEBI-regulated small cap funds across performance, risk, cost, and portfolio quality metrics as of March 2026, the top picks are:
• Best Overall: Bandhan Small Cap Fund. Ranks number 1 since inception, number 1 over 3 years, and number 2 over 5 years.
• Best Large Fund: Nippon India Small Cap. The only fund in the top 5 across all four time horizons with an AUM above Rs 50,000 crore.
• Best Value: ITI Small Cap Fund. Lowest TER (0.39%), exceptional 3-year returns (26.9%), and outstanding risk-adjusted metrics.
• Best 10-Year Track Record: HDFC Small Cap Fund. 20.6% 10-year CAGR with the lowest beta in the top performers, indicating strong downside protection.
• Best Risk-Adjusted: Invesco India Smallcap Fund. Alpha of 6.16, Sharpe of 1.00, and among the top performers across most metrics.
• Emerging Watch: Bank of India Small Cap Fund. Strong since-inception CAGR (25.3%), solid 3-year returns (26.5%), and a small but competitive AUM.
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The following tables rank the top 10 small cap mutual funds across four time horizons: Since Inception, 10-Year, 5-Year, and 3-Year.
All returns are annualised (CAGR) for direct plan growth plans as of March 2026. AUM data is sourced from AMFI India as of February 2026.
Top 10 Small Cap mutual funds by returns since inception (CAGR)
Rank | Fund Name | Returns (CAGR) |
1 | Bandhan Small Cap Fund | 31.1% |
2 | Bank of India Small Cap Fund | 25.3% |
3 | Edelweiss Small Cap Fund | 25.0% |
4 | Nippon India Small Cap Fund | 24.0% |
5 | Invesco India Small Cap Fund | 23.5% |
6 | Canara Robeco Small Cap Fund | 22.6% |
7 | Axis Small Cap Fund | 22.6% |
8 | SBI Small Cap Fund | 22.5% |
9 | Tata Small Cap Fund | 20.9% |
10 | DSP Small Cap Fund | 20.9% |
Top 10 Small Cap mutual funds by 10-year returns (CAGR)
Rank | Fund Name | 10Y CAGR |
1 | Nippon India Small Cap Fund | 22.9% |
2 | HDFC Small Cap Fund | 20.6% |
3 | Axis Small Cap Fund | 20.5% |
4 | SBI Small Cap Fund | 19.6% |
5 | Quant Small Cap Fund | 19.5% |
6 | Kotak Small Cap Fund | 19.5% |
7 | HSBC Small Cap Fund | 19.1% |
8 | DSP Small Cap Fund | 18.9% |
9 | ICICI Prudential Smallcap Fund | 18.1% |
10 | Union Small Cap Fund | 17.7% |
Top 10 Small Cap mutual funds by 5-year returns (CAGR)
Rank | Fund Name | 5Y CAGR |
1 | Quant Small Cap Fund | 26.4% |
2 | Bandhan Small Cap Fund | 25.0% |
3 | Nippon India Small Cap Fund | 24.6% |
4 | Invesco India Smallcap Fund | 24.2% |
5 | HSBC Small Cap Fund | 22.5% |
6 | Edelweiss Small Cap Fund | 22.0% |
7 | Canara Robeco Small Cap Fund | 21.9% |
8 | HDFC Small Cap Fund | 21.9% |
9 | Sundaram Small Cap Fund | 21.7% |
10 | Bank of India Small Cap Fund | 21.6% |
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Top 10 Small Cap mutual funds by 3-year returns (CAGR)
Rank | Fund Name | 3Y CAGR |
1 | Bandhan Small Cap Fund | 32.0% |
2 | ITI Small Cap Fund | 26.9% |
3 | Invesco India Small Cap Fund | 26.7% |
4 | Nippon India Small Cap Fund | 22.1% |
5 | Edelweiss Small Cap Fund | 21.5% |
6 | DSP Small Cap Fund | 21.4% |
7 | Sundaram Small Cap Fund | 21.3% |
8 | Bank of India Small Cap Fund | 21.3% |
9 | Union Small Cap Fund | 21.1% |
10 | Quant Small Cap Fund | 20.6% |
Across all 21 small cap funds analysed, three dominant sectoral themes emerge that have shaped performance over 2023 to 2026:
• Industrials and Capex Play: this is the single largest sector allocation across the category, with most funds holding 20% to 30% in industrial companies. The government’s infrastructure push and PLI schemes have been powerful tailwinds.
• Financials: small-cap NBFCs, private sector banks, and insurance companies form the second-largest allocation.
• Consumer Discretionary: consumer-facing small caps in retail, apparel, QSR, and durables have benefited from rising urban incomes.
• Energy and Utilities: with India’s green energy transition accelerating, small cap funds with exposure to solar components, EV charging, and power distribution companies have added meaningful returns.
Active management makes a decisive difference in the volatile small cap space. Here are the standout managers:
Sanjeev Sharma (Bandhan Small Cap Fund): Sharma’s concentrated, high-conviction strategy has produced the category’s best alpha (10.34) and Sharpe ratio (1.22).
Samir Rachh (Nippon India Small Cap Fund): managing India’s largest small cap fund with consistent top-quartile performance across all time horizons, a rare feat at this scale.
Chirag Setalvad (HDFC Small Cap Fund): Setalvad’s patient, value-oriented approach has delivered the lowest beta in the top performer group, indicating strong downside protection without sacrificing long-term returns.
ITI Small Cap Fund Team: ITI Small Cap is a dark horse with a small AUM and the lowest TER (0.39%) in the category. Its risk-adjusted metrics (Alpha: 7.80, Sharpe: 1.10) are exceptional.
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Raw returns tell only part of the story. In the volatile small cap universe, risk-adjusted performance metrics matter as much as absolute returns.
Sharpe Ratio: Bandhan Small Cap (1.22), ITI Small Cap (1.10), and Invesco India Smallcap (1.00) deliver the best excess return per unit of total risk.
Sortino Ratio: the Sortino ratio focuses exclusively on downside volatility. Bandhan (1.95), ITI (1.63), and Invesco (1.47) lead here.
Alpha: Bandhan (10.34), ITI (7.80), and Invesco (6.16) generate the highest alpha over the category benchmark.
Beta: among top performers, Axis Small Cap (0.73) and ICICI Prudential Smallcap (0.75) demonstrate the lowest market sensitivity.
In the compounding game, every basis point of expense ratio saved is a basis point of return added. The expense ratio picture in small caps:
• Most Cost-Efficient: ITI Small Cap Fund (0.39%), Invesco India Smallcap (0.40%), and Tata Small Cap (0.43%) offer the lowest TER in the category.
• Mid-Range: most large-AUM funds (Nippon India at 0.65%, SBI at 0.75%, HDFC at 0.73%) carry moderate TERs that are reasonable given their scale.
• Higher Expense Funds: Union Small Cap (0.96%) carries the highest TER in the category.
AUM size is a particularly important consideration in the small cap space, where liquidity in underlying stocks can be a genuine constraint at very large fund sizes.
Nippon India Small Cap Fund (Rs 65,812 crore) is the category’s largest fund by a significant margin. At this size, the manager must be especially disciplined about stock selection and building positions carefully to avoid market impact.
Mid-Sized Leaders: SBI (Rs 34,449 crore), HDFC (Rs 36,941 crore), and Quant (Rs 27,384 crore) represent the next tier, large enough to be well-diversified but not so large as to face meaningful liquidity constraints.
Agile Performers: Bank of India (Rs 1,829 crore), ITI (Rs 2,673 crore), and Union Small Cap (Rs 1,697 crore) benefit from their smaller size, which allows faster repositioning and access to genuinely small companies.
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This article is for informational and educational purposes only and does not constitute investment advice, portfolio management advice, or a solicitation to buy or sell any securities. Mutual fund investments are subject to market risks. Past performance is not indicative of future results. Returns mentioned are based on direct growth plans and may differ from regular plans. Please read all scheme-related documents carefully before investing. The author and publisher are not responsible for any investment decisions made based on this article.
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The content on this website is for informational and educational purposes only and should not be construed as investment advice, a recommendation, or a solicitation to buy or sell any security, mutual fund, or financial instrument. Equity Research India is not a SEBI-registered investment advisor or research analyst, and nothing on this site constitutes personalized financial advice.
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.
Readers should conduct their own due diligence and consult a SEBI-registered financial advisor before making any investment decisions. Equity Research India and its authors accept no liability for any loss or damage arising from the use of this content.
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