Small-cap stocks have long been praised for their strong growth capability and ability to outperform their large-cap counterparts over prolonged durations of time. Global small-cap performance has been exact so far in 2026; however, experts warn that without a disciplined, long-term approach, short-term gains can be misleading. Small-cap index funds are an appealing option for Indian traders looking for a less expensive, passive method to take advantage of this growth. These price ranges are seeking to copy the performance of a massive part of India's small-cap market by following a benchmark, together with the Nifty Smallcap 250 Index, without depending on active inventory choice. This article summarises the nice small-cap index funds for 2026, explains their importance, and offers advice on how to choose the best one depending on your risk tolerance and financial goals.

What Are Small-Cap Index Funds?

Passive equities, mutual funds, and exchange-traded funds (ETFs) that aim to mimic the performance of small-cap indexes, just like the Nifty Smallcap 250 Index, are referred to as a small-cap index budget. Small-cap organisations provide extra capability earnings because they're usually in early levels of growth; however, they also carry extra risk and volatility. Typically speaking, a long-term making an investment horizon of five years or greater is suggested. Those funds offer benefits like the following via maintaining a diverse basket of small-cap corporations that are weighted in accordance with the benchmark:

• Widespread diversification among hundreds of tiny businesses
• Low cost ratios, in contrast to funds that are actively managed
• Rules-based, transparent investing
• Regular market exposure with little prejudice from people

Top Small-Cap Index Funds for 2026

Here are some of the most notable small-cap index funds available to Indian investors:

1. Motilal Oswal Nifty Smallcap 250 Index Fund

The Nifty Smallcap 250 Index, which reflects a sizable array of up-and-coming small-cap organisations in India, is what the Motilal Oswal Nifty Smallcap 250 Index Fund is supposed to display. Instead of outperforming the index via inventory selection, this passive fund seeks to exactly mimic its performance. Due to this, it's far more suitable for traders searching out policies-based, obvious exposure to the small-cap market. By offering sectoral diversification, the fund lessens reliance on unique shares. long-term go back capability is improved by means of its low-cost shape. Small-cap corporations are nice for investors with a long investment horizon because of their growth orientation. All matters considered, it can feature as a middle allocation for growth-oriented, disciplined portfolios in 2026.

Why it matters: This fund is ideal for investors who want broad market exposure without the volatility of selecting individual small-cap stocks.

2. ICICI Prudential Nifty Smallcap 250 Index Fund

Traders can take advantage of passive publicity to the same Nifty Smallcap 250 Index via the ICICI Prudential Nifty Smallcap 250 Index Fund. It helps disperse risk at the same time as leveraging the development potential of smaller agencies via investing in 250 small-cap businesses. The fund is attractive for long-term wealth accumulation because of its price-effective structure. Traders that decide on index-based investing without relying on active fund management choices might use it. The performance of the fund is closely impacted by using modifications within the small-cap market as a whole. It is able to add growth-oriented exposure to an already-current equity portfolio. For buyers looking to diversify throughout fund homes, this fund gives a reliable alternative.

3. Nippon India Nifty Smallcap 250 Index Fund

One of the more alternatives in the small-cap index fund market is the Nippon India Nifty Smallcap 250 Index Fund. It offers improved liquidity and operational balance due to its relatively great asset base. With the least quantity of tracking error possible, the fund seeks to imitate the Nifty Smallcap 250 Index. Investors can participate in the growth of India's up-and-coming corporations thanks to its diverse holdings. The fund facilitates investors' average market volatility through the years and is appropriate for systematic investing applications. In comparison to many actively managed small-cap funds, it continues to decrease prices considering the fact that it is passively managed. For investors who value scale, consistency, and long-term exposure, it is a solid preference.

4. Axis & Aditya Birla Sun Life Smallcap Index Funds

Small-cap index funds that observe the Nifty Smallcap 250 Index or the Nifty Smallcap 50 Index are available from Axis Mutual Fund and Aditya Birla Sun Life Mutual Fund. In comparison to more general indexes, the Nifty Smallcap 50 may also have somewhat lower volatility because it concentrates on comparatively large and extra liquid small-cap stocks. By using a passive approach, these funds make certain that returns stay in line with their respective benchmarks. versions in performance in the course of marketplace cycles might also result from differences in index construction. Investors looking for more sophisticated publicity inside the small-cap universe need to consider these funds. In a different portfolio, they can be used to complement more general small-cap index funds. Traders ought to evaluate expense ratios and tracking error before selecting a fund.

Conclusion

For investors looking for disciplined publicity to India's increasingly small-cap market, small-cap index budgets are still a potent device in 2026. Budget-like, the Motilal Oswal Nifty Smallcap 250 Index Fund provides an attractive focal point for long-term stock portfolios due to its huge diversification, low expenses, and passive control. Make prudent investments, hold onto them for a long time, and take advantage of compound interest.

Recommended read: Types of Index funds- Benefits and Risks of investing

Open Demat Account and Begin Your Investment Journey!