3 equity mutual fund categories offer over 10% returns in 2025 so far. Will 2026 be the same?
Three equity mutual fund categories have offered over 10% return in the calendar year 2025 so far, an analysis by ETMutualFunds showed. There were 24 categories, excluding international funds. Out of these 24 categories, 20 gave positive returns, and four gave negative returns.
Auto sector-based funds delivered an average return of 17.57% average return in 2025 so far. SBI Automotive Opportunities Fund is the only actively managed fund based on the auto sector.
Banks & Financial Services gave an average return of 15.55% in 2025 so far. There were 21 funds in the said time period, of which Quant BFSI Fund gave 20.38% return in the said time period, followed by DSP Banking & Financial Services Fund which gave 20.22% return in the same period. Groww Banking & Financial Services Fund delivered the lowest return of around 8.75% in 2025 so far.
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Three new funds have been launched in 2025 so far in the banks & financial services sector – Bajaj Finserv Banking and Financial Services Fund, HSBC Financial Services Fund, and Mahindra Manulife Banking & Financial Services Fund.
What helped these two categories perform in this fashion? Vishal Dhawan, Founder & CEO, Plan Ahead Wealth Advisors said that factors that helped fuel the rally of the auto sector include higher disposable incomes and India’s low vehicle penetration compared to developed markets, which created a strong demand base.
“Additionally, the recent GST tax relief measures, along with festive-season demand and rural recovery in two-wheelers, tractors, and small cars, have further boosted sales. And lastly, automakers are also launching new models and premium SUVs/EVs, driving higher realizations. Meanwhile, robust deal activity and fresh investments across OEMs, components, and the EV ecosystem have reinforced investor confidence.”For the banks & financial services sector, Dhawan says that the sector benefited from improving balance sheets and stable asset quality, aided by effective monetary policy transmission. India’s real GDP grew by 8.1% in Q2 FY25, whilst moderating inflation and easing wholesale price pressures improved liquidity conditions and this supported credit growth and banking sector profitability.
“The RBI delivered cumulative rate cuts of 125 bps over the easing cycle, improving liquidity and funding conditions. RBI’s accommodative stance and surplus liquidity helped banks maintain steady earnings even amid global uncertainty and additionally, select private sector banks were trading at relatively reasonable valuations compared to broader market multiples, making the sector attractive to investors in an otherwise expensive equity market,” Dhawan added.
The next and last category to deliver double-digit average return in 2025 was service industry based funds which gave 9.97% return. Large cap funds and energy & power funds gave an average return of 6.96% and 6.27% respectively in 2025.
The next categories were equity-oriented hybrid categories. Equity savings, arbitrage funds, aggressive hybrid, and balanced advantage/dynamic asset allocation funds gave an average return of 6.08%, 5.82%, 5.21%, and 5.08% respectively in 2025.
Contra and focused funds gave an average return of 4.74% and 4.45% respectively in the current calendar year so far. Value funds, large & mid cap funds, and ELSS funds gave an average return of 3.99%, 3.75%, and 2.81% respectively in the said time period.
Flexi cap funds, the most preferred category according to the monthly AMFI data, delivered an average return of 2.81% in 2025 so far. There are 39 flexi cap funds as of now, of which HDFC Flexi Cap Fund gave the highest return of 11.27% in 2025 so far, followed by Tata Flexi Cap Fund which gave 10.39% return in the said time period.
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Parag Parikh Flexi Cap Fund, the largest active and flexi cap fund based on assets managed, delivered a return of 7.31% return in 2025 so far. Samco Flexi Cap Fund lost the most of around 19.43% in 2025 so far.
Around five flexi-cap funds have been launched in the current calendar year so far of which some funds which gained investors’ interest were – JioBlackRock Flexi Cap Fund, The Wealth Company Flexi Cap Fund, and Capitalmind Flexi Cap Fund.
Thematic funds international and MNC theme based funds gave an average return of 2.76% in the said time period.
Multi-cap and midcap funds gave an average return of 2.07% and 1.62% respectively in the current calendar year so far. MNC funds and consumption funds were the last ones to offer positive average returns. These categories gave an average return of 1.19% and 0.55% in 2025 so far.
Negative performers
Smallcap funds lost the most of around 4.68% in the current calendar year so far. There were 29 funds in the small cap category in the said time period, of which LIC MF Small Cap Fund lost the most of around 14.32% in 2025 so far. Quantum Small Cap Fund gave the highest return of 3.29% in 2025 so far.
Pharma & Health Care funds gave a negative average return of 3.29% in the mentioned period. There were 16 pharma and healthcare sector based funds of which ITI Pharma & Healthcare Fund lost the most of around 9.16%. HDFC Pharma and Healthcare Fund gave the highest return of 1.51% in the same period.
According to Dhawan, small-cap stocks entered 2025 after an extended rerating phase over the previous few years, leaving many names trading at multiples well above their long-term averages, often without proportionate earnings visibility and during FY25, earnings downgrades were more frequent in the small-cap universe compared to large caps, as cost pressures, demand volatility, and balance-sheet constraints weighed on profitability.
“A market-wide correction during the year disproportionately impacted liquidity-sensitive small-cap stocks, leading to sharper drawdowns relative to large caps,” he added.
For the pharma and healthcare sector, Dhawan is of the opinion that the sector derives a significant portion of its revenues from the US market. In 2025, concerns emerged following US tariff actions on Indian goods and subsequent policy uncertainty for pharmaceutical imports, which negatively impacted sector sentiment.
“Additionally, the US government’s proposal around “Most Favoured Nation” (MFN) drug pricing raised fears of price erosion and margin compression, contributing to a derating of pharma stocks. While sector earnings were not materially impacted by these tariff and pricing concerns partly cushioned by a depreciating Indian rupee investor sentiment remained cautious.”
And finally, sectoral rotation away from defensives and towards cyclical and rate-sensitive sectors such as banks and automobiles reduced relative flows into pharma stocks, adding further pressure on returns, Dhawan said.
Technology and infrastructure sector based funds on an average lost 3.15% and 1.10% in the current calendar year so far.
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We considered all equity categories, including sectoral, thematic and equity-oriented hybrid funds. We considered regular and growth options. We calculated the returns from January 1, 2025, to December 15, 2025.
Note: The above exercise is not a recommendation. The exercise was done to find how equity and equity-oriented mutual fund categories performed in 2025. One should not make investment or redemption based on the above exercise. One should always consider risk appetite, investment horizon, and goals before making any investment decisions.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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