Personal Finance
Small-cap mutual funds have emerged as some of the best-performing investment options in recent years. While they are known for carrying higher risk than large-cap or mid-cap funds, they have rewarded investors handsomely during the market’s strong growth phase.
For those unfamiliar with the term, small-cap companies are relatively smaller businesses with significant growth potential. Investing in them is somewhat like supporting a young business that could become much larger in the future. Because of this potential, small-cap funds can generate strong returns, although they can also be more volatile.
According to recent data by Association of Mutual Funds in India (AMFI), the following five small-cap mutual funds have delivered impressive annualised returns (regular) over the past three years.
1. Bandhan Small Cap Fund – 27.10% Return
Bandhan Small Cap Fund topped the list with a three-year annualised return of 27.10%. The fund tracks the BSE 250 Small cap TRI (total return index)benchmark and has significantly outperformed its benchmark return of 17.71% during the same period.
Such performance highlights the fund’s ability to identify promising small-cap companies and benefit from their growth journey.
2. ITI Small Cap Fund – 23.59% Return
The ITI Small Cap Fund delivered a strong three-year annualised return of 23.59%, comfortably beating its benchmark return of 19.30%.
The fund has benefited from investments in companies that have witnessed strong earnings growth, making it a noteworthy performer in the small-cap category.
3. Invesco India Smallcap Fund – 22.43% Return
Invesco India Smallcap Fund generated a three-year annualised return of 22.43%. Compared with its benchmark return of 17.71%, the fund has shown a consistent ability to create additional value for investors.
Its performance reflects the growing opportunities available in India’s smaller listed companies.
4. Mahindra Manulife Small Cap Fund – 21.44% Return
Mahindra Manulife Small Cap Fund posted a healthy annualised return of 21.44% over the last three years. The fund also outperformed its benchmark return of 17.71%.
Despite market fluctuations, the fund has managed to deliver solid returns, making it one of the better-performing options in the segment.
5. Bank of India Small Cap Fund – 21.10% Return
Rounding off the list is the Bank of India Small Cap Fund, which delivered a three-year annualised return of 21.10%. This is higher than its benchmark return of 19.30%, reflecting effective stock selection and portfolio management.
The fund has benefited from the strong performance of several emerging companies across sectors.
Here is the summarised data of the best-performing small-cap mutual funds as per the latest June report 2026, according to AMFI India
| Scheme Name | Benchmark | 3‑Year Return (%) |
|---|---|---|
| Bandhan Small Cap Fund | BSE 250 Smallcap TRI | 27.10 |
| ITI Small Cap Fund | Nifty Smallcap 250 TRI | 23.59 |
| Invesco India Smallcap Fund | BSE 250 Smallcap TRI | 22.43 |
| Mahindra Manulife Small Cap Fund | BSE 250 Smallcap TRI | 21.44 |
| Bank of India Small Cap Fund | Nifty Smallcap 250 TRI | 21.10 |
Higher Returns With Higher Risk
While the returns may look attractive, small-cap funds come with a “Very High” risk rating. These funds can witness sharp ups and downs in the short term and may not be suitable for those looking for stability.
However, for investors with a long-term investment horizon of at least five to seven years and a higher risk appetite, small-cap funds can play an important role in wealth creation.
As always, investment decisions should be based on individual financial goals, risk tolerance, and time horizon. Past performance does not guarantee future returns, but these five funds have certainly demonstrated their ability to generate strong gains over the last three years.