Just a year ago, many investors were wondering whether the small-cap party was over. After disappointing returns in 2025, several investors turned cautious about the category. But 2026 has seen a sharp turnaround.
Small-cap funds are once again leading the return charts, with 5 of the top 10 best-performing equity mutual funds (excluding international funds) belonging to the small-cap category. The top performers have delivered impressive returns of 20% to 25% in just the first 6 months of the year, according to Value Research.
This stellar performance by small-cap funds has come despite the market still being extremely volatile so far due to geopolitical tension, volatile energy prices, and uncertain central bank policies globally.
The 2026 comeback is significant because it follows a difficult phase. Small-cap funds had generated stellar gains in 2023 and 2024 as investors poured money into the segment and smaller companies benefited from India’s strong economic growth.
That momentum, however, faded in 2025 as valuations became expensive, profit booking increased and concerns over earnings weighed on the broader small-cap market, pushing the category into negative returns.
Now, strong domestic SIP inflows, improving earnings in sectors such as defence, manufacturing, healthcare and power, and renewed confidence in India’s growth story have once again put small-cap funds among the biggest winners of 2026 so far.
So, now take a look at the top 5 small cap funds, and how have they performed against their respective benchmark and category?
Best performing small cap funds
| Funds | 6 Months Returns In % | Benchmark: BSE 250 SmallCap TRI Returns In % | Category Average Returns In % |
| Bank of India Small Cap Dir | 25.16 | 9.36 | 12.44 |
| TRUST MF Small Cap Dir | 25.05 | 9.36 | 12.44 |
| JM Small Cap Dir | 21.91 | 9.36 | 12.44 |
| Motilal Oswal Small Cap Dir | 20.94 | 9.36 | 12.44 |
| Union Small Cap Dir | 20.32 | 9.36 | 12.44 |
Source: Value Research as of 9th July 2026
Bank of India Small Cap Fund
The fund commenced operations on December 19, 2018, and has produced returns of 27.20% since its inception. Bank of India Small Cap Fund, which has an expense ratio of 0.45%, is managed by fund managers Alok Singh and Nav Bhardwaj.
The Bank of India Small Cap Fund topped the category with a 25.16% return, whereas the fund has delivered an impressive 22.98% return over the last three months, significantly outperforming both its benchmark, the BSE 250 SmallCap TRI, which returned 14.81%, and the small-cap category average of 16.17%.
Over the past one year, Bank of India Small Cap Fund generated a 16.32% return, substantially higher than the BSE 250 SmallCap TRI’s 0.33% return and well ahead of the small-cap category average of 5.60%.
Top 5 holdings: Wockhardt, Sky Gold and Diamonds, Acutaas Chemicals, Lloyds Metals and Quality Power Electrical Equipments.
Top 5 sector-wise holdings: Industrials, Consumer Discretionary, Financial, Healthcare and Materials.
Risk profile: Despite being categorised as a Very High Risk fund, Bank of India Small Cap Fund – Direct Plan has delivered a mean return of 23.60%, comfortably outperforming both the BSE 250 SmallCap TRI’s 18.79% and the small-cap category average of 19.88%.
The fund’s standard deviation of 21.88% is marginally lower than the benchmark’s 22.04%, suggesting slightly lower volatility than the broader small-cap market.
With a Sharpe ratio of 0.81, the fund outperforms both the benchmark (0.59) and the category average (0.69), demonstrating that it has generated significantly better risk-adjusted returns for investors.
The fund also posts a Sortino ratio of 1.21, well above the benchmark’s 0.92 and the category average of 1.03. It has generated an alpha of 5.52%, substantially higher than the category average of 2.42%.
TRUSTMF Small Cap Fund
The fund commenced on November 4, 2024, and has produced returns of 17.90% since its inception. The fund managers of TRUSTMF Small Cap Fund, which has an expense ratio of 0.45%, are Mihir Vora, Saurabh Kataria, and Aakash Manghani.
TRUST MF Small Cap Fund, which delivered 25.05%, comes 2nd in the list in terms of 6-month returns. The fund has also delivered an impressive 24.81% return over the last three months, making it one of the best-performing schemes in the small-cap category.
The fund comfortably outperformed its benchmark, the BSE 250 SmallCap TRI, which returned 14.81%, as well as the category average of 16.17%. Over the past one year, TRUST MF Small Cap Fund – Direct Plan generated an outstanding 24.69% return, significantly outperforming both the BSE 250 SmallCap TRI, which returned 0.33%, and the small-cap category average of 5.60%.
Top 5 holdings: Federal Bank, Cemindia Projects, MCX, Sansera Eng, and City Union Bank.
Top 5 sector-wise holdings: Consumer Discretionary, Financial, Industrials, Healthcare and Materials.
Risk profile: Since the scheme is relatively new, several risk-adjusted performance metrics such as Mean Return, Standard Deviation, Sharpe Ratio, Sortino Ratio, Beta, and Alpha are currently unavailable because there is not enough historical data to calculate them.
JM Small Cap Fund
The fund, which was initiated on June 18, 2024, has produced returns of 7.95% since its inception. The fund managers of JM Small Cap Fund, which has an expense ratio of 0.64%, are Satish Ramanathan, Asit Bhandarkar, Ruchi Fozdar, and Deepak Gupta.
JM Small Cap Fund delivered an outstanding 27.78% return over the last three months, making it one of the strongest performers in the small-cap category. The fund significantly outperformed its benchmark, the BSE 250 SmallCap TRI, which returned 14.81%, as well as the category average of 16.17%.
Over the past one year, JM Small Cap Fund generated a 12.21% return, comfortably outperforming both the BSE 250 SmallCap TRI, which returned 0.33%, and the small-cap category average of 5.60%.
Top 5 holdings: Garware Hi-Tech, Acutaas Chemicals, Godfrey Phillips, TD Power Systems and Shaily Eng Plastics.
Top 5 sector-wise holdings: Industrials, Consumer Discretionary, Financial, Materials and Healthcare.
Risk profile: The scheme is only 2 years old, so several risk-adjusted performance metrics are currently unavailable due to insufficient historical data for their calculation.
Motilal Oswal Small Cap Fund
Since its launch on December 26, 2023, the fund has produced returns of 22.66%. The fund managers of Motilal Oswal Small Cap Fund, which has an expense ratio of 0.56%, are Varun Sharma, Ajay Khandelwal, Rakesh Shetty, and Bhalchandra Shinde.
Motilal Oswal Small Cap Fund has delivered a robust 23.10% return over the last three months, significantly outperforming both its benchmark, the BSE 250 SmallCap TRI, which returned 14.81%, and the small-cap category average of 16.17%.
Whereas, in the last 1 year, the fund has generated an impressive 15.81% return, comfortably outperforming both the BSE 250 SmallCap TRI, which returned 0.33%, and the small-cap category average of 5.60%.
Top 5 holdings: Rubicon Research, VA Tech Wabag, Aditya Infotech, CCL Products and Karur Vysya Bank.
Top 5 sector-wise holdings: Consumer Discretionary, Healthcare, Financial, Technology, and Industrials.
Risk profile: Since the scheme is relatively new, several risk-adjusted performance metrics are currently unavailable on Value Research.
Union Small Cap Fund
Since its launch on June 10, 2014, the fund has produced a return of 16.53%. Union Small Cap Fund, which has an expense ratio of 0.80%, is currently managed by fund managers Pratik Dharmshi and Gaurav Chopra.
Union Small Cap Fund generated a 17.98% return over the last three months, outperforming both its benchmark, the BSE 250 SmallCap TRI, which delivered 14.81%, and the small-cap category average of 16.17%, whereas in the last 1 year it has delivered an impressive 16.40% return, comfortably beating both the BSE 250 SmallCap TRI, which returned 0.33%, and the small-cap category average of 5.60%.
Top 5 holdings: Navin Fluorine, GE Vernova T&D, Kirloskar Oil, Gabriel India and Karur Vysya Bank.
Top 5 sector-wise holdings: Industrials, Financial, Consumer Discretionary, Healthcare, and Materials.
Risk profile: Union Small Cap Fund – Direct Plan is classified as a Very High Risk fund by Value Research. Despite the higher risk associated with the small-cap category, the fund has delivered a mean return of 20.74%, outperforming both the BSE 250 SmallCap TRI, which returned 18.79%, and the small-cap category average of 19.88%.
The fund’s standard deviation of 19.70% is lower than both the benchmark’s 22.04% and the category average of 20.33%, suggesting that it has experienced comparatively lower volatility than the broader small-cap market and the average fund in its category.
With a Sharpe ratio of 0.76, the fund outperforms the benchmark (0.59) as well as the category average (0.69), indicating that it has delivered better risk-adjusted returns for the level of risk undertaken.
The fund’s Sortino ratio of 1.02 is higher than the benchmark’s 0.92, though marginally below the category average of 1.03. This suggests that the fund has managed downside risk better than the benchmark, while performing broadly in line with its peers.
Word of caution
As the aforementioned small-cap funds have produced outstanding short-term returns, it should be noted that such returns are not guaranteed in the future.
Small-cap mutual funds invest in companies with smaller market capitalisations. These companies often have higher growth potential but are also more vulnerable to economic slowdowns, market corrections, and business-specific risks. As a result, small-cap funds tend to be more volatile than large-cap or flexi-cap funds.
Small-cap stocks can rise sharply during bull markets but may also witness steep declines during market corrections. During market rallies, small-cap stocks can become expensive, increasing the risk of sharp corrections.
Investors should evaluate both historical performance and all the risk metrics before investing in a small-cap fund.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing.