Sitaare Zameen Par: Gold, silver and global funds shine brighter than domestic equity stars

Amid global uncertainty and volatile markets, gold, silver and international equity mutual funds have delivered standout one-year returns, outperforming even the best domestic equity fund, according to Value Research data analysed by Moneycontrol.

Gold funds led the charts with a return of 33.27 percent, followed by silver funds at 20.43 percent. International equity funds delivered 18.33 percent, the highest among equity categories. In comparison, the best-performing domestic equity fund, Parag Parikh ELSS Tax Saver Fund – Direct Plan – Growth, returned 13 percent.

Domestic equity underwhelms

While domestic equity categories lagged, experts said the muted returns need to be seen in larger context. Large cap and flexi cap funds returned just 3.86 percent each, midcap 3.79 percent, and small cap 2.10 percent. Sectoral funds in pharma, banking, and technology posted the strongest gains.

“Markets remained range-bound last year despite high volatility and frequent flash crashes, offering little time for portfolio adjustments,” said Nirav Karkera, Head of Fundamental Research at Fisdom, adding that while equities struggled amid global macro uncertainty, precious metals like gold and silver thrived on safe-haven demand and sector-specific tailwinds.

Shweta Rajani, Head – Mutual Funds at Anand Rathi Wealth, added, “Equity by nature is volatile. If one had followed a strategic asset allocation approach, for instance, keeping 55 percent in large caps and the rest in small and mid-caps, the downside would have been better managed. These corrections should be seen as opportunities rather than reasons to panic.”

In June, net inflows into equity mutual funds fell 21.66 percent to a one-year low of Rs 19,013.12 crore in May from the previous month, data released by the Association of Mutual Funds of India (AMFI). The benchmark indices, Nifty 50 and Sensex, both rose around 5 percent over the past year.

Gold and silver shine as safe-haven assets

Gold was the best-performing asset class, supported by global uncertainty and rising institutional demand.

“There was so much uncertainty in the market i.e. wars, tariffs, geopolitical tensions. Gold, being the defensive category, is hence expected to do well. That was one reason gold has been an exception,” said Pankaj Shrestha, Head of Investment Services at PL Capital.

He added, “First was dollar, second was euro, third was gold. Now gold has come second. With the US coming under debt pressure, people are getting into gold. Central banks and institutional players are buying gold not just because of inflation, but because it’s now seen as a currency reserve.”

Rajani added, “Gold, as an asset class, has seen a strong rally recently. This trend is largely driven by global demand-supply dynamics. Several central banks have been increasing their gold reserves amid rising geopolitical risks, which has supported prices.”

But on gold she added some caution. “Gold has historically delivered returns in cycles. Over the past five years, it has done well, but if you compare the Sharpe ratio of gold with Nifty, equity still scores better in terms of risk-adjusted returns. So, do not make gold a core part of your portfolio unless your goals justify it,” she said.

Silver also saw strong gains, supported by industrial use

Among gold and silver funds, UTI, Invesco, and Tata Gold ETFs delivered 34.37 to 34.65 percent. HDFC, Axis, and Tata Silver ETFs returned between 21.76 and 23 percent.

International equity funds too benefited from global tailwinds. A recovery in the tech sector and easing rate concerns helped major indices such as the S&P 500, Dow Jones and Nasdaq clock gains of around 12 percent each, which boosted fund performance.

Debt funds also rally

Debt mutual funds also outperformed. Credit risk funds topped the list at 11.28 percent, followed by gilt with 10-year constant duration at 10.92 percent. Medium duration, corporate bond, and target maturity funds returned between 9.37 and 9.52 percent.

Experts attribute this to falling interest rates and lower bond yields. G-Sec yields dropped from 7 percent to 6.2 percent, boosting long-term debt fund returns

Shrestha said, “Going forward, returns may moderate, but debt will still offer decent returns and capital protection. With uncertainty still high, debt and gold are the classes to own. We feel gold will continue to do well for the next two to three years.”

Change for equity funds soon?

Despite short-term underperformance, equity remains the largest mutual fund asset class in terms of AUM. Large Cap and Flexi Cap funds together manage over Rs 17 lakh crore in assets followed by Thematic and Sectoral Funds and Gold ETFs.

Even over longer timeframes, equities continue to outperform. Small Cap and Mid Cap funds have delivered 27–33 percent CAGR over three and five years. Thematic-PSU funds returned over 39.8 percent in three years and 33 percent in five. International funds, too, held up with 19.54 percent CAGR over three years.

Looking ahead, experts expect a shift in sentiment. “We’re seeing greater geopolitical stability, improving macro certainty, and a more favourable domestic environment. Corporate earnings are reviving and consumption is picking up,” Karkera said, adding that the market is gradually shifting toward a risk-on environment and the narrative for equities is turning.

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