Best Small Cap Mutual Funds by Returns in 2026

Then came April to June 2026, and the segment saw a rally of 23%. This wild trajectory shows why investors choose the smallcap space time and again, and how they are paid to sit through volatility like that.

Today, we will examine the top 5 smallcap funds in India, ranked by their average five-year rolling return.

These are Quant (25.0%), Bandhan (24.4%), Invesco India (24.1%), Nippon India (24.0%), and Bank of India (22.6%).

While these funds have carried a fair record in the past, it overstates what a new investor should expect, because the same funds’ plain five-year returns today are only 17% to 19%. On risk-adjusted measures, the rankings change.

#1 Quant Small Cap Fund

First on the list is Quant Small Cap fund.

Quant tops the ranking by 0.65 percentage points, with a mean five-year rolling return of 25.04%, and it has the least conventional portfolio of the five.

HFCL accounts for 6.1% of its portfolio. The top five holdings, HFCL, RBL Bank, Adani Enterprises, Adani Power and Aegis Logistics, add up to about 22%.

The fund manages Rs 355.7 billion (bn) and charges 0.62% in the direct plan.

It has seven fund managers, among them Ankit Pande, Sandeep Tandon and Varun Pattani.

The fund’s volatility over the three years to 11 October 2026 was 18.2% annualised, with a Sharpe ratio of 0.199 and a Sortino ratio of 0.403.

The number to hold against 25.04% is the fund’s own five-year return as of this month: 17.84%.

So in terms of rolling returns and trailing returns, that’s a gap of 7.2 points.

#2 Bandhan Small Cap Fund

Second is India’s most popular fund.

Bandhan Small Cap has the shortest history of the five names on the list and the best risk-adjusted numbers.

Launched on 25 February 2020 and run by Manish Gunwani, it has a Sharpe ratio of 0.288 and a Sortino ratio of 0.561, the best of the top ten funds by return and fifth of the 36 funds.

It ranks first among 24 funds over three years (21.5%) and second among 23 over five years (17.6%).

Its size is the whole story. The fund’s net assets were Rs 14.1 bn in March 2022, Rs 95.2 bn in March 2025, Rs 201.3 bn in March 2026 and Rs 341.8 bn in August 2026.

Gunwani recently told in an interview in July that he buys only stocks with a genuine chance of doubling in three to four years, that the fund holds more than 200 names and that liquidity risk is handled by keeping the portfolio highly granular.

It holds around 10% in cash. His research team tracks more than 700 companies.

That said, a fund whose assets have grown about 24 times since March 2022 has not yet been tested at this size through a long downturn. Gunwani himself says the current team has worked together for about three years.

#3 Invesco India Smallcap Fund

Third is Invesco India Smallcap.

Invesco launched on 30 October 2018 and has averaged 24.05% on five-year rolling returns.

Its five-year return of 18.49% is well ahead of the Nifty Smallcap 250‘s 12.42%. It’s three-year return is 21.55% against 12.52%, and its one-year return is 11.66% against 2.70%, as of 9 October.

Aditya Khemani, who joined as co-manager in November 2023, runs the fund with Taher Badshah, who has been on it since launch.

It holds Rs 157.4 bn, charges 0.63% and is 95.2% in equity.

The five largest holdings are Sai Life Sciences (5.04%), Eternal (4.6%), Amber Enterprises (4.0%), Aditya Infotech (3.78%), and Krishna Institute of Medical Sciences (3.54%).

Its Sharpe ratio of 0.262 and Sortino ratio of 0.489 are second only to Bandhan’s among the top five.

Invesco is the case where the benchmark gap and the risk numbers both agree. The unusual holdings suggest a fund that is willing to leave the category’s boundaries when it sees growth elsewhere.

#4 Nippon India Small Cap Fund

Nippon India Small Cap is the category’s giant, with about Rs 810 bn of assets.

Samir Rachh holds 254 stocks and no position is above 2% of its portfolio. Capital goods (14.5%) and automobiles (9.7%) are the biggest sectors.

It had the lowest volatility of the top five, at 17.5% annualised, and also the weakest Sharpe (0.172) and Sortino (0.322) ratios.

The fund’s three-year return of 13.4% is level with its benchmark’s 13.5% and ranks 14th of 24.

Over five years it has earned 17.1% against 14.2% for the Nifty Smallcap 250.

The fund restricted lumpsum investments in 2023, but this keeps changing from time to time. So check the current rules before planning an investment.

#5 Bank of India Small Cap Fund

Last on the list is Bank of India Small Cap Fund.

Bank of India Small Cap launched on 19 December 2018. Its average rolling return of 22.55% is 1.5 points behind Nippon India’s, but its present five-year return of 18.75% is second only to Bandhan’s.

Nav Bhardwaj and Alok Singh manage it, and the direct plan charges 0.42%.

The largest holdings are modest, between 2% and 3% each: Sky Gold and Diamonds, City Union Bank, Sterlite Technologies, and Quality Power Electrical Equipments.

In August, the fund added seven stocks and dropped eleven, including SBI, ICICI Bank and Hindustan Aeronautics, and ended the month with 76.6% in small caps and 6.2% in debt.

Volatility is the highest of the five names on the list, at 20.0% annualised. Its Sharpe ratio of 0.241 and Sortino ratio of 0.456 rank it third among them.

Snapshot of the Five

Rank	Fund	5-yr rolling avg (%)	5-yr return today (%)	Std dev (%)	Sharpe	Sortino
1	Quant Small Cap	25.0	17.8	18.2	0.1	0.4
2	Bandhan Small Cap	24.3	19.0	18.8	0.2	0.5
3	Invesco India Smallcap	24.0	18.4	18.9	0.2	0.4
4	Nippon India Small Cap	24.0	17.1	17.5	0.1	0.3
5	Bank of India Small Cap	22.5	18.7	20.0	0.2	0.4

Data Source: Ace MF (rolling returns and risk ratios, three years to 11 October 2026)

Apart from the above, here are other five that come next.

Rank	Fund	5-yr rolling avg (%)	vs benchmark avg (pts)	Std dev (%)	Sharpe	Sortino
6	HSBC Small Cap	21.9	1.3	20.2	0.1	0.2
7	Edelweiss Small Cap	21.8	1.2	17.1	0.1	0.3
8	DSP Small Cap	21.0	0.4	18.8	0.2	0.3
9	HDFC Small Cap	20.9	0.3	16.3	0.1	0.2
10	LIC MF Small Cap	20.9	0.3	20.6	0.1	0.3

Conclusion

Small-cap funds are placed at the high-risk end, and most of them charge a 1% exit load on redemptions within a year.

A 24% five-year average describes the years it covers, and not the next five. So how a fund behaved in the falls, how large it is now and what it holds say more than the order of the list.

Investors should take cognisance of their investment objectives and risk-taking ability before deciding the suitable allocation in small cap funds.

Maintaining a well-diversified portfolio of equity mutual funds spread across sub-categories can reduce the impact of market fluctuations, enabling better risk-adjusted returns over a period.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…

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