Even as the large-cap stocks have struggled this year, pulling the benchmark Nifty 50 almost 11% lower year-to-date (YTD), the mid-caps and small-caps have emerged as unlikely winners in a market ravaged by the Middle East conflict and threats of earnings slowdown, along with a weak Indian rupee and foreign investor selling.
Small-cap funds drew record ₹6,562 crore of inflows in April, according to data from the Association of Mutual Funds in India. Large-cap funds, by contrast, lost some shine, with inflows dropping 15.3% to ₹2525 crore, underscoring a sharper hunt for growth and value beyond India’s biggest stocks.
For the year, the Nifty Smallcap 100 index is up 2.46% and remains in the green for the third straight month, showing signs of resilience. April was the best month for the index with an 18% rise. The index added 0.73% in May and is flat with a positive bias in June so far.
This traction in small-cap stocks has helped several actively-managed funds deliver a strong performance this year, with up to 14% returns in just five months. Data from ACE MF shows that the top-performing small-cap funds have delivered over 5% returns and beaten their respective benchmarks handsomely.
Best-performing small-cap funds YTD
Here’s a look at the leading small-cap funds so far in 2026:
1. Bank of India Smallcap Fund
Leading the chart is Bank of India Smallcap Fund with a 14.44% return as of June 2, 2026, according to data from ACE MF. The fund has assets under management (AUM) of over ₹2,000 crore. However, it has a high expense ratio of 1.74%.
On a longer time frame of a year, the fund has risen 12%, while it has gained 80% in three years and 141% in five years.
2. TRUST MF Smallcap Fund
It is followed by Trust Mutual Fund’s Smallcap Fund with a 12.6% return YTD. With an NAV of ₹12 and a market capitalisation of just ₹102 crore, the fund also has a high expense ratio of 1.79%.
The fund is newly launched, with only data available for its one-year performance, during which it had risen 19.90%.
3. Union Smallcap Fund
This smallcap fund has delivered a YTD gain of 8.97% to its investors. Having an AUM of ₹1,980 crore, Union Smallcap Fund has never been a category leader in the last few years.
The NAV for the fund stands at ₹53.16, and its expense ratio remains steep at 1.76%. It has delivered 13.5% returns in a year, 18.7% in two years, 122% in five years and 343% in 10 years.
4. Motilal Oswal Smallcap Fund
The Motilal Oswal Smallcap Fund has delivered an 8.4% return to its investors in 2026 so far. It has an NAV of ₹15 and an AUM of ₹6,200 crore, with an expense ratio of over 2%.
The fund was more recently launched and has delivered 9% gains in a year and 33% in two years.
5. JM Smallcap Fund
JM Smallcap Fund, having an NAV of ₹10.41, has risen 7.3% in 2026 so far. The fund has an AUM of ₹677 crore and an expense ratio of 2.51%. This is also a more recently launched fund with only one year of returns of 6%.
Other funds on the list include: Aditya Birla SL Smallcap Fund (up 7.3%), LIC MF Smallcap Fund (up 6.7%), ITI Smallcap Fund (up 6.4%), DSP Smallcap Fund (up 5.8%) and Quant Smallcap Fund (up 5.47%).
Smallcap opportunity re-emerging: Bajaj Broking
Commenting on the outlook for smallcaps, Bajaj Broking said that the segment may be approaching a favourable entry point, supported by improving fundamentals, a potential earnings recovery, corrected valuations, and historically strong rebound patterns.
A study by the broking house suggests that the small-cap universe has undergone a significant structural transformation in recent years, as companies are increasingly funding expansion through internal cash flows rather than borrowing, resulting in healthier balance sheets and improved profitability metrics.
It stated that aggregate capex in the segment increased from approximately ₹2.2 trillion during FY19–FY22 to nearly ₹3.4 trillion during FY23–FY26, while net debt-to-equity levels declined sharply from 0.52x in FY19 to near-zero levels in FY26. “During the same period, return on equity (ROE) improved from 9% to 12%, reflecting stronger financial discipline and sustainable business models,” it said.
Moreover, recent market corrections have also created opportunities for valuations supported by earnings growth and contextual factors, with nearly 50% of small-cap stocks trading below their 10-year average valuations, as per its data.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
