Top Small Cap Mutual Funds in 2026: These 3 Funds Delivered Over 25% in 1 Year

Investing in the stock market can be rewarding, but picking the right companies is not always easy. Investors need to study businesses, track their financial performance and keep an eye on changing market conditions. For many people, doing this regularly can be difficult.

This is where mutual funds can make investing simpler. Instead of putting money into individual stocks, investors can invest in a fund that spreads their money across a portfolio of securities. The portfolio is managed by a professional fund manager based on the fund's investment objective.

What Are Mutual Funds?

A mutual fund collects money from a large number of investors and invests it across assets such as equities, bonds and other securities. Each investor owns units of the fund based on the amount invested. The value of these units changes with the performance of the underlying investments.

Why Look at Small Cap Mutual Funds?

Within the mutual fund space, small-cap funds have attracted attention from investors looking for higher growth potential. These funds invest mainly in smaller listed companies, which can have greater room for expansion compared with more established businesses.
However, higher growth potential also comes with higher risk. Small-cap stocks can see sharp price movements, particularly when market sentiment turns weak.

Best Performing Small Cap Mutual Funds in 2026

With this in mind, we looked at the mutual funds that delivered strong returns over the past year. From this list, we identified small-cap funds that have performed ahead of their category average.

The small-cap mutual fund category recorded an average 1-year return of 14.3% based on the data. All three funds discussed below delivered returns higher than this average.

*Data as of September 4, 2026, unless stated otherwise. Past performance does not guarantee future returns.

1. TrustMF Small Cap Fund Direct Growth

TrustMF Small Cap Fund delivered the highest 1-year return among the three funds considered, gaining 33.87% during the period. The fund had an AUM of ₹2,860 crore, with an expense ratio of 0.45%.

The portfolio remained largely invested in equities. As of August 15, 2026, equity accounted for 96.2% of the portfolio, while debt and cash made up the remaining 3.8%. Small-cap stocks accounted for 71.9% of the portfolio, followed by mid-caps at 21.9%.

Financial Services was the largest sector allocation at 28.5%. Industrial and Basic Materials followed, with each accounting for 16.9% of the portfolio.

2. Bank of India Small Cap Fund Direct Growth

Bank of India Small Cap Fund delivered a 28.83% 1-year return, placing it ahead of the small-cap category average. The fund also has a longer performance record, with 3-year and 5-year returns of 22.35% and 21%, respectively.

The fund had an AUM of ₹2,819 crore and an expense ratio of 0.44%. As of August 15, 2026, 88% of the portfolio was invested in equities, while debt and cash accounted for 12%.

Small-cap stocks made up 75% of the portfolio. Mid-cap and large-cap stocks accounted for 8.1% and 2.8%, respectively. At the sector level, Industrial stocks had the largest allocation at 22.4%, followed by Consumer Cyclical at 19.7% and Financial Services at 17.6%.

3. Motilal Oswal Small Cap Fund Direct Growth

Motilal Oswal Small Cap Fund posted a 25.65% 1-year return, which was also comfortably above the category average of 14.3%.
The fund had the largest AUM among the three at ₹7,605 crore. Its expense ratio stood at 0.85%. The portfolio was heavily tilted towards equities, which accounted for 97.1% of the fund as of August 15, 2026.

The fund had the highest small-cap allocation among the three funds, at 85.2%. Mid-cap stocks accounted for 8.2%, while large-cap stocks made up 1.5%.

Consumer Cyclical was the largest sector allocation at 26.1%. Financial Services and Industrial stocks followed with allocations of 20.4% and 15.1%, respectively.

Past Returns Should Not Be the Only Factor

Strong recent returns can make a mutual fund look attractive, but they should not be the only reason to invest. A fund that has performed well over the past year may not necessarily deliver similar returns in the future.

Investors should also look at the fund's investment strategy, portfolio composition, expense ratio, AUM, volatility and longer-term performance. It is equally important to understand whether the level of risk suits their investment horizon and financial goals.