Over the past twelve months up to 23 August 2026, the Nifty Smallcap 250 TRI has returned a mere 0.64%.
On a rolling return basis, measured from every trading day of the year, India’s smallcap benchmark has essentially gone nowhere.
That’s worth knowing if you’re buying into a smallcap fund. After three years in which the same index compounded above 20% a year, the segment has spent a year going sideways.
Interestingly, of the total 31 schemes present in the smallcap segment, only five with a one-year history have actually lost money.
A flat year is exactly when the difference between one fund and another stops being academic.
With smallcap valuations at attractive levels, investors are once again looking at the smallcap space and it is also evident from the latest data which shows that 55% of the SIP money goes to this segment.
Keeping that in mind, let’s look at the 3 best smallcap mutual funds in India. Add these to your watchlist.
Please note, these schemes have been shortlisted based on a combined quantitative score which includes 6-month, 1-year, 3-year, and 5-year rolling returns along with risk-reward ratios such as standard deviation, sharpe, sortino, and up/down capture ratio.
A rolling return matters here as instead of measuring from a single date, which makes the answer depend on which day you happened to pick, it measures from every date and averages the results.
In a category as volatile as smallcaps, that difference is the difference between measuring a fund and measuring your luck.
#1 Bandhan Small Cap Fund
First on the list is India’s fastest growing and most popular smallcap fund. It has the strongest numbers in the category, and the shortest record of the three funds on this list.
Over three-year rolling periods, Bandhan Smallcap has returned 30.48% against the benchmark’s 20.32%, an outperformance of more than ten percentage points and the highest of any smallcap fund in the data.
Over five years it delivered 26.09%, second in the category.
Its Sharpe ratio of 0.32 and Sortino of 0.63 both rank fourth of 36, and its Sortino is comfortably the best of these three, meaning it delivered its returns with less downside volatility than peers.
Bandhan Small Cap fund was launched on 25 February 2020, so there is no seven-year track record yet. That said, six and a half years is a reasonable time period to build a track record.
The other thing to look for this fund is size. Its assets stand at around Rs 311 bn, making this one of the largest funds in the category and roughly fourteen times the size of Union Small Cap.
In smallcap investing that could work against you sometimes. A large fund cannot take a meaningful position in a genuinely small company without moving its price, and the practical result is usually a portfolio that drifts toward the larger end of the smallcap universe.
The fund runs a growth-at-a-reasonable-price approach under Manish Gunwani and Kirthi Jain, deliberately capping its top ten holdings below 30% of the portfolio, and was holding close to 10% in cash at last disclosure.
Its one-year rolling return of 6.25% ranks eleventh in the category, which is the weakest of the three on recent performance.
#2 Invesco India Smallcap Fund
Second is Invesco India Smallcap Fund.
It’s the most consistent fund of the three, and the only one that beat the benchmark over every single period measured.
- One year: 7.38% against 0.64%.
- Three years: 25.43% against 20.74%.
- Five years: 25.59% against 21.24%.
- Seven years: 24.59% against 19.32%.
Four periods, four wins, with margins between 4.35 and 6.74 percentage points. It ranks fifth, third, fourth and third across those four horizons respectively.
This pattern is worth more than a single spectacular number. A fund that beats its index over one year might be lucky. But a fund that beats it over seven, with the margin holding roughly steady throughout, is doing something repeatable.
It also carries the lowest standard deviation of the three at 18.75, with a Sharpe ratio of 0.29 ranking sixth of 36.
Taher Badshah has run it, and the direct plan expense ratio of about 0.39% is among the lowest in the category for a fund with a genuine track record.
The case for this one is that it’s the least dependent on any particular market condition having held.
#3 Union Small Cap Fund
Third is Union Small Cap.
On recent performance, it is the best of the three by a distance. Its one-year rolling return of 9.94% is second highest in the entire category and beats the benchmark by 9.3 percentage points.
That is a genuinely strong showing in a difficult market.
Over three years, it did not beat the benchmark at all. Union returned 19.77% against the index at 20.74%, a shortfall of 0.96 percentage points, ranking eleventh of 24 funds.
Over five years it was ahead, but only by 0.45 percentage points.
Its Sharpe ratio of 0.23 ranks fourteenth and its Sortino of 0.4 eighteenth of 36. On seven years it does better, at 22.14% against 19.19%.
So this is a fund with a long history, a soft middle stretch, and a strong recent recovery.
Part of the explanation is that both current managers are new: Gaurav Chopra took over in November 2024 and Pratik Dharmshi in December 2024.
The weak three-year number largely belongs to their predecessors, and the strong one-year number is the first real evidence on the current team.
The other point in its favour is size. At around Rs 22.7 bn it is a fraction of Bandhan’s scale, which in this category is a structural advantage. A smaller fund can own genuinely small companies in meaningful amounts.
This is the fund on this list with the most to prove.
Snapshot of the Three Funds
Of the 24 smallcap schemes with a three-year rolling record, only seven beat the Nifty Smallcap 250 TRI.
The median fund returned 19.29% against the index at 20.74%. Two-thirds of the category, in the asset class where active management is supposed to earn its keep, lagged the index it is measured against.
| Scheme (Direct Plan, Growth) | 1 year | 3 years | 5 years | 7 years |
|---|---|---|---|---|
| Bandhan Small Cap Fund | 6.25 | 30.48 | 26.09 | No data |
| Invesco India Smallcap Fund | 7.38 | 25.43 | 25.59 | 24.59 |
| Union Small Cap Fund | 9.94 | 19.77 | 21.69 | 22.14 |
| Nifty Smallcap 250 TRI | 0.64 | 20.74 | 21.24 | 19.19 |
Data Source: Ace MF
| Scheme | Standard deviation | Sharpe | Sortino | Sharpe rank |
|---|---|---|---|---|
| Bandhan Small Cap Fund | 18.94 | 0.32 | 0.63 | 4 of 36 |
| Invesco India Smallcap Fund | 18.75 | 0.29 | 0.53 | 6 of 36 |
| Union Small Cap Fund | 18.91 | 0.23 | 0.40 | 14 of 36 |
| Nifty Smallcap 250 TRI | 19.99 | 0.19 | 0.35 | – |
Data Source: Ace MF
Conclusion
Bandhan has the best numbers and the shortest history, at a size that will make repeating them harder.
Invesco has beaten its benchmark over one, three, five and seven years, which is the closest thing to evidence of skill available in this data.
Union has the longest history, the weakest middle, and the strongest recent quarter under a management team that is barely two years old.
The larger point is that when two-thirds of active funds failed to beat the index over three years, the choice of fund is doing far more work than the choice of category.
And smallcap money should not be money you might need. This is the part of the market that falls hardest and takes longest to recover, and a year like the one just past is a mild version of what that feels like. Seven years is the minimum sensible horizon here, and ten is better.
As always, evaluate the scheme’s investment mandate, the fund manager’s track record, costs, portfolio composition, and your own asset allocation and risk tolerance before drawing any investment conclusions.
Happy investing.
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Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…
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