3 Most Popular Small Cap Mutual Funds in India

#1 Nippon India Small Cap Fund

Nippon India Small Cap Fund is among the largest and most widely tracked schemes in the small-cap category, with a long operating history and a well-established track record across market cycles.

The fund adopts a diversified approach towards smallcaps, seeking opportunities across a broad spectrum of sectors and businesses rather than taking concentrated bets on a handful of stocks.

As of May 2026, its top holdings include HDFC Bank Ltd. (1.89%), Multi Commodity Exchange of India Ltd. (1.76%), Bharat Heavy Electricals Ltd. (1.67%), TD Power Systems Ltd. (1.54%), and Apar Industries Ltd. (1.49%).

The portfolio showcases a blend of financial, industrial, and manufacturing businesses positioned to benefit from India's ongoing economic expansion. From a sector perspective, capital goods holds a significant share, banking is another major allocation with financial services exposure.

The fund's strategy focuses on identifying emerging companies with scalable business models, strong earnings growth potential, and the ability to benefit from India's evolving economic landscape.

This broad exposure has historically enabled the fund to participate effectively during small-cap rallies while mitigating stock-specific risks.

The fund's long-term performance remains one of its key strengths. It has delivered a CAGR of 23.71% over the last three years, 30.62% over five years, and 22.46% over ten years, outperforming both the category average and the Nifty Smallcap 250 TRI across longer time horizons.

Additionally, its annualised standard deviation of 17.96% remains lower than the benchmark, indicating relatively better risk management despite operating within a volatile segment.

In the current market environment, where small-cap valuations have moderated following bouts of volatility, the fund's diversified portfolio and experienced management approach may help investors participate in India's long-term growth story.

#2 Bandhan Small Cap Fund

Bandhan Small Cap Fund has emerged as one of the strongest performers within the small-cap category in recent years.

While relatively younger than some of its peers, the fund has attracted investor attention through its robust stock selection framework and ability to identify high-growth businesses at an early stage.

Rather than merely tracking market momentum, the portfolio seeks businesses capable of sustaining growth over longer periods, allowing the fund to benefit from both earnings expansion and potential re-rating opportunities.

Bandhan Small Cap Fund follows a diversified small-cap strategy with exposure across financials, domestic consumption, logistics, and healthcare themes.

As of May 2026, its top holdings include REC Ltd. (3.49%), Sobha Ltd. (3.28%), LT Foods Ltd. (2.14%), The South Indian Bank Ltd. (1.66%), and PNB Housing Finance Ltd. (1.66%).

The portfolio reflects the fund manager's preference for businesses benefiting from India's credit growth, housing demand, and consumption trends. The fund's positioning suggests a balanced mix of cyclical and structural growth opportunities within the small-cap universe.

Among the three schemes under consideration, Bandhan Small Cap Fund has delivered the strongest recent performance, generating a CAGR of 31.73% over the last three years and 30.41% over the five-year period.

The fund also stands out on risk-adjusted return metrics, recording the highest Sharpe Ratio of 0.37 and Sortino Ratio of 0.73, suggesting superior returns relative to the level of risk undertaken.

The fund's strong recent track record highlights its ability to navigate the evolving small-cap landscape, particularly during periods when stock selection plays a crucial role in generating alpha.

#3 HSBC Small Cap Fund

HSBC Small Cap Fund seeks to identify emerging companies with strong balance sheets, improving profitability, and the ability to benefit from long-term structural trends within the Indian economy.

The portfolio construction process places significant emphasis on business fundamentals and management quality, allowing the fund to maintain exposure to companies that may potentially create shareholder value over extended periods.

This approach helps the fund avoid excessive concentration in speculative pockets of the market while still capturing growth opportunities available within the small-cap universe.

HSBC Small Cap Fund adopts a research-driven approach focused on identifying quality businesses with sustainable earnings growth.

The fund's top five holdings as of May 2026 are MTAR Technologies Ltd. (3.08%), PNB Housing Finance Ltd. (2.18%), GE Vernova T&D India Ltd. (2.12%), Karur Vysya Bank Ltd. (2.08%), and Apar Industries Ltd. (2.04%).

Sector-wise, Capital Goods emerges as the largest allocation. Financial Services constitutes another key exposure including Banking represented by Karur Vysya Bank and Federal Bank.

The scheme has delivered a CAGR of 21.07% over three years, 28.15% over five years, and 20.05% over ten years, comfortably outperforming the category average over longer periods.

While its recent one-year return has remained subdued amid market volatility, the fund's long-term consistency highlights the benefits of its disciplined investment framework.

As investors increasingly focus on quality and earnings resilience amid uncertain global conditions, HSBC Small Cap Fund's research-oriented approach may continue to provide a balanced avenue for participating in the small-cap segment.

3 Most Popular Small Cap Mutual Funds

Final Thoughts

While these funds have demonstrated their ability to generate strong long-term returns, investors should remember that small-cap investing is inherently volatile and often experiences sharp corrections during periods of market stress.

Strong past performance may not always translate into similar outcomes in the near term, particularly when valuations are elevated or broader markets undergo consolidation.

Therefore, investors should approach the category with realistic return expectations, a high-risk appetite, and a long-term investment horizon of at least 7-10 years to effectively navigate volatility and potentially benefit from the wealth-creation opportunities offered by emerging businesses.

Invest wisely.

Happy investing.

Table Note: Data as of June 04, 2026
The securities quoted are for illustration only and are not recommendatory
Past performance is not an indicator for future returns.
Returns are on rolling CAGR basis and in %. Direct Plan-Growth option.
Those depicted over 1-Yr are compounded annualised.
Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.

Disclaimer: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, enlistment as IA with Exchange and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.