Small-Cap Mutual Funds Deliver Strong Returns, Yielding Up to 14% Year-to-Date

Small-caps Shine Amid Market Volatility

Despite the benchmark Nifty 50 index experiencing a decline of almost 11% year-to-date (YTD), mid-caps and small-caps have emerged as unlikely winners in the Indian market. The ongoing Middle East conflict, threats of earnings slowdown, a weak Indian rupee, and foreign investor selling have had a significant impact on large-cap stocks, leading to a record inflow of ₹6,562 crore into small-cap funds in April, according to the Association of Mutual Funds in India.

In contrast, large-cap funds have seen a decline in inflows, dropping 15.3% to ₹2525 crore in April. This shift in investor preference highlights a sharper hunt for growth and value beyond India's biggest stocks. The Nifty Smallcap 100 index, which represents small-cap stocks, has shown resilience, rising 2.46% YTD and remaining in the green for the third straight month. April was the best month for the index, with an 18% rise, followed by a 0.73% increase in May and a flat performance with a positive bias in June so far.

This traction in small-cap stocks has led to several actively-managed funds delivering strong performances this year, with some funds achieving up to 14% returns in just five months. Data from ACE MF shows that the top-performing small-cap funds have delivered over 5% returns and beaten their respective benchmarks handsomely.

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Best-performing Small-cap Funds YTD

The top-performing small-cap funds in YTD returns are led by Bank of India Smallcap Fund with a 14.44% return as of June 2, 2026, followed by TRUST MF Smallcap Fund with a 12.6% return. Other notable funds include Union Smallcap Fund, Motilal Oswal Smallcap Fund, and JM Smallcap Fund.

Bajaj Broking Sees Favourable Outlook for Smallcaps

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According to Bajaj Broking, the segment may be approaching a favourable entry point, supported by improving fundamentals, a potential earnings recovery, corrected valuations, and historically strong rebound patterns. A study by the broking house suggests that the small-cap universe has undergone a significant structural transformation in recent years, with companies increasingly funding expansion through internal cash flows rather than borrowing. This has resulted in healthier balance sheets and improved profitability metrics.