Small-cap mutual funds have long been a high-risk, high-reward segment for investors, delivering an average return of around 19% over the past decade. These schemes primarily invest in companies ranked beyond the top 250 by market capitalisation, with at least 65% of their portfolio allocated to small-cap stocks, as mandated by SEBI.
However, the category has seen sharp volatility in recent times. In 2025, small-cap funds emerged among the worst-performing segments, posting an average negative return of nearly 5%. Despite this short-term correction, investor sentiment appears to be turning, with the category witnessing renewed interest and inflows of ₹3,881 crore in February 2026.
Against this backdrop, selecting the right small-cap funds becomes crucial. Here’s a look at the best small-cap mutual funds for April 2026.
| Fund Name | AUM (₹ Cr) | 3Y CAGR (%) | 5Y CAGR (%) |
| Quant Multi Asset Allocation Fund | 4,925.89 | 23.41% | 23.80% |
| Bandhan Small Cap Fund | 20,474.12 | 29.23% | 22.79% |
| Invesco India Smallcap Fund | 9,716.40 | 22.88% | 20.96% |
| Bank of India Small Cap Fund | 1,903.70 | 19.68% | 19.48% |
| ITI Small Cap Fund | 2,712.50 | 23.62% | 17.33% |
| Nippon India Multi Asset Allocation Fund | 13,438.26 | 20.55% | 16.64% |
| Mahindra Manulife Small Cap Fund | 4,075.54 | 23.15% | 0.00% |
This is a dynamic hybrid fund that invests across Equity, Debt, and Commodities (primarily Gold). It is known for its tactical asset allocation using the "VLRT" framework (Valuation, Liquidity, Risk, and Timing). The fund recently gained attention for its high-conviction overweight positions in the financial sector, which helped drive its significant outperformance.
This fund focuses on long-term wealth creation by investing predominantly (minimum 65%) in small-cap companies. It targets emerging businesses with high growth potential and scalable models. It is designed for investors with a high risk appetite and a long-term investment horizon (5+ years).
This fund employs a research-driven approach to identify "market disruptors" and "sunrise industries." It seeks companies that are currently small but operate in large profit pools or niche segments like healthcare services, e-commerce, and logistics, with the goal of riding their growth as they scale.
An actively managed small-cap scheme that prioritizes sustainable business models and capital appreciation potential. While it remains focused on the small-cap segment, it maintains the flexibility to pursue stock opportunities across the entire market spectrum to manage risk and enhance returns.
This hybrid fund offers diversification across four distinct asset classes: Domestic Equities, International Equities, Debt, and Commodities (Gold and Silver). It aims to deliver equity-like returns with much lower volatility by ensuring that the portfolio is not overly dependent on a single asset class.
This fund focuses on capturing the potential of "entrepreneurial India." It seeks out under-researched and under-owned small-cap companies that have the potential to become future mid-caps. It often invests in sectors like consumer services and textiles where niche market leaders are emerging.
| Fund Name | Expense Ratio (%) | Sharpe Ratio |
| Nippon India Multi Asset Allocation Fund | 0.25% | 1.11 |
| ITI Small Cap Fund | 0.39% | 0.41 |
| Invesco India Smallcap Fund | 0.40% | 0.51 |
| Bandhan Small Cap Fund | 0.49% | 0.53 |
| Bank of India Small Cap Fund | 0.51% | 0.45 |
| Mahindra Manulife Small Cap Fund | 0.54% | 0.48 |
| Quant Multi Asset Allocation Fund | 0.58% | 2.04 |
Small-cap mutual funds continue to offer strong long-term return potential, but they come with higher volatility in the short term. As seen in recent performance trends, careful fund selection based on consistent returns and cost efficiency is key. Investors should align their choices with their risk appetite and investment horizon while focusing on fundamentally strong funds with disciplined strategies.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Mutual fund investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
Published on: Apr 8, 2026, 4:24 PM IST
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