5 high risk mutual funds with high returns

As 2025 draws to a close, one investment group distinguished itself by its explosive nature — high-risk mutual funds. These are funds that live off of volatility in the market and place concentrated wagers on individual sectors, market sizes, or themes to try to achieve top-notch returns.

But the same risk that drives these returns may also increase short-term drawdowns.

As investors prepare their strategies for 2026, the appetite for high-risk, high-return funds is rising once again. 

Why? Because when markets consolidate after a strong phase — as we’ve seen through most of 2024 and 2025 — it’s often the next leg of the rally that rewards those who entered early, albeit with a strong stomach for volatility.

The Indian stock market continues to be propped up by solid domestic liquidity, stable macros, and uninterrupted SIP inflows. However, mid and small-cap valuations have become pricey relative to historical levels, suggesting volatility in the offing.

For long-term investors, however, these wobbles may throw open good entry points into funds that have demonstrated strength on a risk-adjusted basis.

As India enters 2026 with hopes of robust earnings expansion, slowing inflation, and consistent inflows from retail as well as foreign investors, this could be the moment to look for high-conviction schemes that not only yielded top returns in the past but have also demonstrated resilience across periods of volatility.

We have listed 5 mutual fund schemes that combine high returns with elevated risk metrics — including higher standard deviation and volatility ratios. These funds have delivered strong risk-adjusted performance despite market swings.

Scheme Name	Absolute (%)	CAGR (%)			Risk Ratios
	1 Year	3 Years	5 Years	10 Years	SD	Sharpe	Sortino
Invesco India PSU Equity Fund	9.15	33.35	29.56	17.78	20.56	0.36	0.80
Bandhan Small Cap Fund	21.32	30.35	36.09	–	17.55	0.41	0.83
Motilal Oswal Mid Cap Fund	22.76	31.46	34.97	19.45	17.21	0.35	0.65
Nippon India Power & Infra Fund	7.53	30.74	32.34	16.92	16.99	0.38	0.73
ICICI Pru Infrastructure Fund	12.54	31.44	35.45	17.00	13.98	0.46	0.99
Benchmark – Nifty Midcap 150 TRI	7.21	24.17	28.62	18.38	15.27	0.37	0.73
Nifty Smallcap 250 TRI	1.72	23.67	29.12	15.63	18.72	0.30	0.57

Data as of October 29, 2025

(Source: ACE MF)

#1 Invesco India PSU Equity Fund

Invesco India PSU Equity Fund primarily invests in companies where the central or state government holds a majority stake or has significant control over management decisions. 

This high-conviction focus makes it a high-risk, high-return proposition, directly linked to policy actions, reforms, and the performance of capital-intensive sectors such as energy, defence, and infrastructure.

The fund has delivered a robust 5-year CAGR of 30.59%, showcasing its potential to outperform during favourable cycles.

The fund exhibits very high volatility, with an annualised standard deviation of about 20.56%, reflecting sharp price swings. A Sharpe ratio of 0.36 and Sortino ratio of 0.80 show its ability to generate strong returns despite elevated risk. 

As of September 2025, the fund manages assets worth around Rs 14.17 bn, with nearly 98.7% invested in equities, primarily across large and mid-sized PSUs. 

Its top holdings include Bharat Electronics (9.05%), SBI (8.8%), and Bharat Petroleum Corporation (7.73%). Sector allocation remains dominated by power (25.2%), capital goods (23.8%), and crude oil (14.07%). 

Such concentration enhances return potential during bull phases of the PSU cycle but also increases vulnerability to sectoral corrections, interest rate fluctuations, and policy reversals.

#2 Bandhan Small Cap Fund

Bandhan Small Cap Fund focuses on identifying high-growth potential companies in the early stages of their business lifecycle, aiming to capture opportunities before they mature into mid or large-cap leaders. 

Over the past five years, the fund has delivered an impressive CAGR of 36.09%, reflecting its strong stock-picking ability in the small-cap universe. However, this performance comes with very high volatility, indicated by an annualised SD of around 17.55%. 

A Sharpe ratio of 0.41 and Sortino ratio of 0.83 highlight that while the fund has managed to reward risk-takers handsomely, its returns are accompanied by significant price fluctuations — a hallmark of small-cap investing.

As of September 2025, the fund manages an AUM of Rs 157.37 bn, with 68.8% allocated to small-cap stocks, 9.9% to mid-caps, and 9.2% to large-caps. This allocation underscores its aggressive stance on emerging businesses while maintaining limited exposure to established names for stability.

Top holdings include Shobha (3.38%), REC (2.4%), and L&T Foods (2.2%). The fund’s sector exposure is tilted towards finance (12.3%), healthcare (11.1%), and realty (8.3%), sectors that tend to benefit most during domestic economic expansion.

#3 Motilal Oswal Mid Cap Fund 

Motilal Oswal Midcap Fund follows a concentrated approach and bias towards growth-oriented sectors — one that could outperform sharply in bullish phases but may also see deeper corrections during market downturns.

From a risk perspective, the fund exhibits elevated volatility with an annualised standard deviation of around 17.21%, reflecting its exposure to cyclical and high-beta stocks. 

The Sharpe ratio near 0.35 suggests that while volatility remains high, the fund has managed to reward investors adequately for the risks taken. 

Similarly, a healthy Sortino ratio 0.65 indicates its capability to contain downside volatility and convert it into superior long-term returns when markets recover.

Over the past five years, the fund has delivered a strong CAGR of around 34.97%, outperforming the Nifty Midcap 150 TRI index, highlighting its effective stock-picking ability. 

The portfolio remains concentrated in 25–30 stocks, with a significant tilt towards IT (25.4%), retail (16.1%), and electricals (16.1%), sectors that have been driving India’s mid-cap growth story.

The fund’s ability to create wealth depends on holding on with patience during volatile phases — a defining trait for those seeking high risk, high reward opportunities in the mid-cap space.

#4 Nippon India Power & Infra Fund

Nippon India Power & Infra Fund aims to capitalize on India’s accelerating infrastructure and power sector revival. 

The fund invests predominantly in companies engaged in engineering, construction, utilities, and energy-related businesses — areas that are highly cyclical but may offer explosive growth during an upcycle. 

Over the past five years, the fund has delivered a CAGR of 32.34%, benefiting from India’s strong capex momentum, policy reforms, and rising demand for power and infrastructure development. 

However, it carries elevated volatility, with an annualised standard deviation of around 6.99%, reflecting sharp price movements tied to sectoral dynamics. 

The Sharpe ratio of 0.38 and Sortino ratio near 0.73 highlight its ability to generate superior risk-adjusted returns when held through market cycles.

As of September 2025, the fund manages assets worth Rs 73.24 bn, with over 97% in equities. Its top holdings include RIL (7.9%), NTPC (7.9%), and Bharati Airtel (5.8%), while sector allocation is heavily skewed toward power (20.1%), capital goods (17.5%), and crude oil (7.9%). 

Such a concentrated exposure enhances performance during infrastructure booms but increases vulnerability during slowdowns.

#5 ICICI Pru Infrastructure Fund

ICICI Prudential Infrastructure Fund is a thematic equity scheme that focuses on companies driving India’s physical and industrial development — from construction, power, and transportation to capital goods and engineering. 

With infrastructure at the core of India’s growth story, this fund offers exposure to cyclical sectors that may deliver outsized returns during expansion phases but also face sharp corrections in downturns. Hence, it squarely fits the high-risk, high-return investment category.

Over the last five years, the fund has delivered a CAGR of around 35.45%, reflecting its strong participation in India’s ongoing capex-led recovery. 

From a risk standpoint, it carries an annualised standard deviation of about 14%, indicating elevated volatility typical of infrastructure-focused portfolios. 

A Sharpe ratio of 0.46 and Sortino ratio of 0.99 highlight its efficient risk-adjusted performance, showcasing how well it has rewarded investors for staying invested through cyclical fluctuations.

As of September 2025, the fund manages assets of nearly Rs 78.63 bn, with over 97% in equities. Its top holdings include Larsen & Toubro (8.5%), NTPC (4.5%), and Vedanta (3.7%), while sectoral exposure is dominated by infrastructure (17.8%), banking (9.7%), and crude oil (9.4%). 

Such concentrated positioning benefits from India’s policy-led infrastructure momentum but possibly amplifies downside risk during liquidity or policy slowdowns.

Is High Risk the Price of High Returns?

Investors should seriously consider — how much risk they are willing to take for greater returns?

High-risk, high-reward mutual funds have demonstrated that volatility could be both a nuisance and a benefit, potentially rewarding those who remain steadfast through market fluctuations.

However, although the potential for wealth generation is high, the path requires belief, self-control, and patience.

The solution is to match aggression with awareness. Investors must judge their risk tolerance and horizon before investing in these funds, preferably as satellites in a diversified portfolio.

Staying invested over market cycles and not letting emotions drive short-term responses is the key to profit from compounding.

Invest wisely.

Happy investing.

Table Note: Data as of October 29, 2025
The securities quoted are for illustration only and are not recommendatory
Past performance is not an indicator for future returns.
Returns are on rolling CAGR basis and in %. Direct Plan-Growth option.
Those depicted over 1-Yr are compounded annualised.
Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.

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