The best small cap fund returned about 20% a year over the five years to 28 September 2026, and not every fund beat the Nifty Smallcap 250 TRI's 14.81%. Expect a fall of 40% or more at some point (the index fell 43.5% in 2020 and 26.0% in 2024–25), and check whether a fund still takes new money before you pick it. This guide compares the top five small cap mutual funds in India by 5-year return, plus two widely held ones, using AMFI data, and shows how they behaved in the last correction.
What Is a Small Cap Fund?
A small cap fund must keep at least 65% of its money in companies ranked 251st or lower by market value, using the list AMFI publishes every six months. "Small" is relative: in AMFI's January–June 2026 list, the largest small cap company had an average market value of about ₹33,400 crore. More than 500 small caps were worth over ₹5,000 crore.
That matters for how much a big fund can buy without owning too much of any one company.
How Risky Are Small Caps?
- 2020: the Nifty Smallcap 250 TRI (total return index, including dividends) fell 41.7% in one month (24 February to 24 March 2020), and 43.5% from peak to trough. It then rose about 236% from the low by the end of 2021.
- 2018–2020: from its January 2018 peak to the March 2020 low, it fell about 60%.
- September 2024 to March 2025: it fell 26.0%, against 15.4% for the Nifty 50 TRI.
Small caps can also lag for years. Only invest money you won't need for at least 7 years, and be sure you can sit through a fall of 40% or more without selling.
Day-to-day swings are bigger too. Over the three years to 28 September 2026, the seven funds below had annualised volatility (the standard deviation of daily NAV changes) of about 14% (SBI) to 19% (Bank of India), against about 13% for a Nifty 50 index fund. That understates the gap, which shows up in the falls: each fund's worst drop in those three years was 22–31%, against 15.5% for the Nifty 50 index fund.
Small Cap Funds Compared
The top five funds by 5-year return, plus two widely held funds, sorted by 5-year return.
| Fund (Direct, Growth) | 3 years (a year) | 5 years (a year) | 5-year rank (of 21) | Expense ratio | Average AUM, Jul–Sep 2026 (₹ Cr) |
|---|---|---|---|---|---|
| Bank of India Small Cap | 21.66% | 20.06% | 1 | 0.73% | 3,105 |
| Invesco India Small Cap | 22.58% | 19.95% | 2 | 0.63% | 15,129 |
| Bandhan Small Cap | 24.14% | 19.63% | 3 | 0.61% | 32,794 |
| Quant Small Cap | 17.04% | 18.96% | 4 | 0.93% | 35,054 |
| Nippon India Small Cap | 14.77% | 18.61% | 5 | 0.69% | 80,841 |
| Tata Small Cap | 12.14% | 15.54% | 12 | 0.51% | 12,995 |
| SBI Small Cap | 11.35% | 13.87% | 18 | 0.80% | 41,386 |
| Nifty Smallcap 250 TRI (reference) | 14.38% | 14.81% | — | — | — |
Data as of 28 September 2026 for returns, calculated from AMFI NAVs. Expense ratio is the Direct plan total expense ratio on 30 September 2026 from AMFI's TER disclosure, including brokerage, transaction costs and statutory levies. AUM is AMFI's average for July–September 2026, all plans of the scheme.
What the table tells you
- Returns are about half what older lists showed. The best small cap fund returned about 20% a year over five years, not 30–37%. Five-year returns to 31 August 2026 were up to about 2 points higher, because markets fell in September. Always check the date.
- Rankings are fragile. ITI Small Cap (18.60%) is 0.01 points behind Nippon in fifth place. On 31 March 2026 the order was different, with Quant first.
- Not every fund beats the index. SBI Small Cap's 5-year return (13.87%) is below the Nifty Smallcap 250 TRI (14.81%).
- Cost: Tata is cheapest at 0.51%; Quant is dearest at 0.93%.
How they fell in 2024–25
The largest fall in each fund's Direct plan NAV between September 2024 and September 2026 was: SBI −22.4%, Bandhan −22.8%, Nippon −24.2%, Quant −24.4% and Tata −30.9%. In the 2020 crash, SBI fell 33.8%, Tata 36.6%, Quant 38.6% and Nippon 40.3%. Past falls are a better guide to what you may face than past returns.
The Size Problem
Nippon India Small Cap managed about ₹80,800 crore on average in July–September 2026 (AMFI). Even with small caps worth up to ₹33,000 crore each, a fund this size can end up owning a large share of some companies, which makes them hard to sell without moving the price.
This is one reason some funds limit new money:
- Nippon India Small Cap has restricted new money since 7 July 2023. Nippon's own factsheets in 2026 give different limits: one allows SIPs and STPs of up to ₹2 lakh per instalment from 30 March 2026, while its factsheet for August 2026 still states a ₹50,000-a-day cap and no lump sums. Groww showed lump sums were not being accepted on 29 September 2026. Check Nippon's current notice before investing.
- SBI Small Cap caps SIPs at ₹25,000 per PAN per month (August 2026 factsheet). Groww showed lump sums were not being accepted on 29 September 2026.
Smaller funds may have more room to move, but size alone does not decide returns. Bank of India Small Cap (₹3,105 crore) tops the table, but Nippon, the largest, is still in the top five.
Quant Small Cap: Things to Know
Quant runs a team-managed, actively rebalanced strategy; its own factsheet says the fund's portfolio turnover is naturally high. High turnover means more trading costs, which are not fully shown in the expense ratio. SEBI searched Quant's offices on 23 June 2024 over suspected front-running, and Quant confirmed the inquiry the next day. We have not seen a final SEBI order.
Who Manages Them
According to AMC factsheets for August 2026: Samir Rachh has run Nippon India Small Cap since January 2017. R. Srinivasan has run SBI Small Cap since November 2013. Chandraprakash Padiyar (since October 2018) and Jeetendra Khatri (since October 2023) run Tata Small Cap. Quant's team includes Sanjeev Sharma and Ankit Pande. Bandhan Small Cap's current manager could not be confirmed from an AMC document, so check its latest factsheet.
How to Compare Small Cap Funds
- Look at falls as well as returns. Compare each fund's drop in 2020 and 2024–25 with the index.
- Check the manager. Small cap stock picking depends heavily on the manager. If they leave, reconsider.
- Check whether it accepts new money and on what terms.
- Consider an index option. Nifty Smallcap 250 ETFs had expense ratios from 0.25% to 0.91% in September 2026. See equity ETFs beyond the Nifty 50.
How Consistent Are the Returns? Rolling 5-Year Periods
A 5-year return to one date is a single snapshot. A rolling return measures every 5-year period, one start day at a time, so you see the range investors actually got. Three funds in the table have Direct-plan NAVs going back to 2013. This is every 5-year period that started on or after 1 January 2014 and ended by 28 September 2026:
| Fund (Direct, Growth) | Median 5-year return (a year) | Worst | Best | Periods under 10% a year |
|---|---|---|---|---|
| Nippon India Small Cap | 22.2% | 2.3% | 45.0% | 6% |
| SBI Small Cap | 21.4% | 7.4% | 34.5% | 2% |
| Quant Small Cap | 22.9% | −9.7% | 54.6% | 26% |
Calculated from AMFI NAVs: about 1,900 daily 5-year periods per fund, ending between 1 January 2019 and 28 September 2026.
The spread is the point. Money put into Nippon India Small Cap in March 2015 earned 2.3% a year over the next five years; money put in five years later, in March 2020, earned 45.0% a year. Every period under 10% a year ended in 2019 or 2020, after the 2018–2020 slump. Quant's was the deepest: from May 2015 to May 2020 it lost 9.7% a year.
The other four funds' Direct plans started between November 2018 and February 2020, so their rolling record mostly covers the rally after 2020 and says little about how they handle a long slump. Keep that in mind before choosing on their top-of-table 5-year returns.
Is Now a Good Time?
Nobody can time small caps reliably. For context, the Nifty Smallcap 250 traded at a P/E of 33.9 on 31 August 2026 (NSE factsheet), which is not cheap. What tends to work is a steady monthly SIP that you keep running through falls. If you have a lump sum, spreading it over 12–18 months through an STP (systematic transfer plan) reduces the risk of investing just before a fall. See should you pause your SIP in a crash.
How Much to Put in Small Caps
Small caps are the most volatile part of an equity portfolio. FinPlann's rule of thumb, the same one used in large cap vs mid cap vs flexi cap, is about 15% of your equity in small caps up to age 30, 10% in your 30s, 5% in your 40s and none after 50. It is a starting point, not a researched formula. If a fall of 40% or more would make you stop your SIP, use a lower band whatever your age. Our financial planner can set a figure for your goals. If your plan calls for ₹40,000 a month in equity SIPs and 10% of that in small caps, that is ₹4,000 a month. Use the SIP calculator to test outcomes.
Retirement money follows the same 7-year test. Small caps can sit in the part of your corpus you won't touch for a decade or more, but not in the money you will draw in the first few years. To size that corpus, see how much money you need to retire in India.
How It Is Taxed
Small cap funds are equity funds. Gains on units held up to 12 months are taxed at 20%. Gains after 12 months are taxed at 12.5% on the amount above ₹1.25 lakh a year.
This guide explains how to compare these funds. It is not a recommendation to buy any specific fund.
Related fund guides
- Best Mid Cap Mutual Funds India 2026
- Best Large Cap Mutual Funds India 2026
- Best Flexi Cap Mutual Funds
Run your numbers: with small caps, a SIP you keep running through falls matters more than the date you start. Test one that rises with your salary in the step-up SIP calculator, or see how a one-time investment might compound in the lumpsum calculator. If you already hold a small cap fund, the mutual fund portfolio analyzer shows its real return to set against the Nifty Smallcap 250 TRI.
