Small-cap mutual funds have emerged as standout performers in 2026, with five of the top 10 best-performing equity funds being small-cap schemes. According to Value Research, the best performers delivered returns ranging between 20% and 25% during the first six months of 2026. This marks a significant turnaround from 2025, when the small-cap category recorded negative returns after strong gains in 2023 and 2024. The performance comes amid continued market volatility driven by geopolitical developments, fluctuations in energy prices, and uncertainty over global central bank policies.
The top-performing small-cap funds demonstrate strong performance across different fund houses. Bank of India Small Cap Direct Fund leads with 25.16% returns, followed closely by TRUST MF Small Cap Direct Fund at 25.05%. JM Small Cap Direct Fund delivered 21.91% returns, while Motilal Oswal Small Cap Direct Fund achieved 20.94% and Union Small Cap Direct Fund recorded 20.32% returns. All five funds significantly outperformed their respective benchmark indices and category averages during the six-month period.
The latest performance has been supported by several positive factors including continued SIP inflows, earnings growth across sectors including defence, manufacturing, healthcare and power, and broader gains in the small-cap segment. As reported by Value Research, these gains have coincided with continued SIP inflows and broader market optimism. The performance follows a challenging year for small-cap funds in 2025, making the current recovery particularly significant for investors in this category.
