All-round mutual fund show: Defence, mid-cap, long-duration, silver funds, all turn chart toppers in 2024

Calendar year 2024 was an all-round year for mutual funds as all the asset classes, including equity, debt and commodities, gave stellar returns.

The year has been strong for the Indian mutual fund industry. The industry’s total assets under management (AUM) increased by 39 percent, growing from Rs 49 lakh crore in November 2023 to Rs 68 lakh crore by the end of November 2024.

“Retail participation dominated equity schemes. While market performance impacts inflows, sustained investments even in a turbulent market in recent months reflect the growing investor confidence. Retail investors, particularly through SIPs (systematic investment plans), will likely remain the backbone of equity mutual funds, supported by growing financial awareness and easier access via apps and platforms,” said Vivek Sharma, Investment Head at Estee Advisors.

India’s strong economic growth and rising corporate earnings will keep equity mutual funds an attractive choice for investors, he added.

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Here’s a look at the top-performing fund categories and individual funds of 2024.

Individual funds

In a year of mixed performance, where countries like Brazil gave negative returns, two overseas funds, Mirae Asset NYSE FANG+ETF Fund of Fund (FoF) and Mirae Asset S&P 500 Top 50 ETF FoF, were the chart toppers in 2024.

The other schemes among top performers during the year included Motilal Oswal Midcap Fund, LIC MF Infra Fund, Motilal Oswal ELSS Tax Saver Fund, Bandhan Small Cap Fund and Motilal Oswal Small Cap Fund.

Active mid-cap, thematic, and small-cap funds featured prominently among the top-performing schemes of 2024.

 

Diversified funds

A diversified equity fund spreads assets across different companies and sectors to maximise gains and minimise risks.

The year 2024 has been good for equity investors, though there was greater volatility. In the diversified active equity funds category, midcaps and smallcaps continue to outperform all the other broad categories on a year-to-date (YTD) basis. On the other hand, large-cap funds lagged.

Aashish Somaiyaa, Chief Executive Officer at WhiteOak Capital AMC, said: “Multi-cap funds with equitable exposure to large-cap, mid-cap and small-cap stocks did very well. But it was important to strike a balance and avoid tilts in favour of growth or value. In the first half of the year, value-biased portfolio did well, but in the second half, good governance and quality started to perform. Hence, it was important to keep the portfolio balanced.”

 

The AUM of equity-oriented schemes saw a remarkable rise of nearly 50 percent, reaching Rs 30 lakh crore from Rs 20 lakh crore in 2023. This growth was driven by high inflows, fuelled by heightened investor optimism and capital appreciation. Inflows into equity schemes were over Rs 3.5 lakh crore in 2024.

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“With markets witnessing a surge in volatility in 2024, due to multiple high-risk events both domestically and globally, nimble-footed funds, such as multicaps, have done well. Most of the multi-cap funds across fund houses have beaten their benchmarks in 2024. With corporate earnings and economy showing some signs of fatigue, our sense is that large-cap funds should perform strongly and generate higher alpha, relative to their benchmarks,” said Manish Chowdhury, Head of Research, StoxBox.

Sectoral/thematic equity funds

Sectoral and thematic funds were particularly popular among investors in 2024. Their AUM grew by over 90 percent, attracting Rs 1.4 lakh crore in net inflows. These funds benefited from the launch of 45 schemes, with themes based on business cycle and manufacturing being the most favoured.

 

“In the sectoral and thematic space, pharma, infrastructure and PSUs were the outliers, with the MNC (multinational company) category being the laggard,” said Juzer Gabajiwala, Director at Ventura Securities.

In the active sectoral/thematic equity fund category, defence was the top-performing fund class, with 47.7 percent YTD returns. To be sure, there’s only one active defence fund in the category — HDFC Defence Fund.

Notably, all active sectoral/thematic fund categories have delivered at least 20 percent returns on a YTD basis in 2024, showing an all-round performance.

Bond funds

Debt funds saw a steady growth in 2024, with their AUM reaching a record Rs 16.86 lakh crore by November, marking a 24 percent increase over the past year. This growth was fuelled by strong inflows into categories like liquid, overnight, and money market funds, which accounted for a significant portion of the gains.

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“Short-term maturity funds remained popular, attracting investors seeking stability and quick liquidity. Gilt and long-duration funds also saw a rise in inflows, supported by expectations of easing interest rates and potential appreciation in bond values,” said Sharma of Estee Advisors.

 

Bond yields have fallen marginally, but still remain elevated across the yield curve.

“Given the drop in bond yields, categories like Long Duration and Dynamic Bond, which take a higher duration exposure, were among the best performers in 2024,” said Kaustubh Belapurkar, Director-Manager Research, Morningstar Investment.

Hybrid funds

Hybrid funds also had a strong 2024, with their AUM reaching an all-time high of Rs 8.77 lakh crore in November, growing by over 41 percent from the previous year. These funds benefited from their balanced approach, offering a mix of equity and debt, making them a preferred choice for investors seeking stability in volatile markets.

The multi-asset allocation category was a standout performer, crossing Rs 1 lakh crore in assets, driven by its ability to invest across diverse asset classes, like equities, bonds, and gold. Arbitrage funds also gained traction, attracting robust inflows due to their potential for stable returns.

“Aggressive Allocation funds, by virtue of having a high equity exposure, were among the best- performing allocation categories, along with Multi Asset Allocation funds, especially those that had exposure in gold, given the sharp run-up in gold prices in the backdrop of global geopolitical tensions,” said Belapurkar.

According to Sharma, investors are increasingly favouring hybrid funds for diversification and risk management.

“As markets remain uncertain, the balanced and aggressive hybrid categories are expected to grow, driven by their dynamic allocation strategies that adapt to changing market conditions,” he said.

 

Commodity funds

Precious metal funds, silver and gold, delivered equity-like returns to investors in 2024.

Gold continued to glitter with investors showing their preference for the yellow metal. Since January 2020, gold exchange-traded funds, as a category, received a net inflow of Rs 25,409 crore, signifying enhanced investor interest in this segment.

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Gold ETFs, as a category, delivered 22 percent returns on a YTD basis. Silver ETFs outperformed, with 26.8 percent returns this year.

Over the years, precious metals have gained prominence as an effective diversifier, prompting many investors to include them in their portfolios.

Funds outlook

When it comes to equity funds, experts believe that because of the relative large-cap valuation comfort vis-à-vis small-cap and mid-cap spaces and uncertainty around the geopolitical positioning, with Donald Trump set to assume office as the new US president on January 20, 2025, large-cap funds offer a more favourable risk-reward ratio in 2025.

On the debt side, with the GDP growth rate slowing down, experts say that the RBI (Reserve Bank of India) may initiate the rate cut cycle in February as inflation would likely cool off by then on the back of a drop in food prices.

“A reduction in repo rate would lead to a drop in bond yields, positively affecting debt funds. Though yields have already receded on rate cut expectations, we still believe that long-duration funds are best-placed to benefit from this as they would respond faster to any rate cuts. Investors with a long-term horizon and higher risk appetite are advised to opt for long duration bonds,” said Chowdhury of StoxBox.