Mutual funds in 2025: Top 5 fund categories for smart investment decisions | Mint

Mutual funds in 2025: Top 5 fund categories for smart investment decisions | Mint

Source: Live Mint

In 2024, Indian equity markets faced significant volatility due to global economic uncertainties and geopolitical tensions, yet the Indian economy showed resilience fueled by strong domestic consumption, infrastructure spending, and supportive policies. This bolstered investor confidence and emphasised the need for portfolio diversification to manage risks effectively.

The year witnessed a growing shift towards passive investments like index funds and ETFs for cost efficiency, while actively managed funds, particularly in large-cap, flexi-cap, and value categories, continued attracting long-term investors due to their consistent performance.

Systematic Investment Plans (SIPs) also reached record-breaking contributions, reflecting disciplined investment behaviour. As 2025 approaches, large-cap funds stand out for their stability, flexi-cap funds for adaptability, value funds for long-term gains, aggressive hybrid funds for balanced growth, and ELSS funds for tax-saving benefits paired with equity market potential.

With robust AUM growth and evolving market dynamics, a well-diversified and strategic mutual fund portfolio is essential for optimizing returns while mitigating risks in the coming year. Here is an in-depth look at the key fund categories that are poised to excel.

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Large-cap funds: Stability in uncertainty

Large-cap funds, which focus on the top 100 companies by market capitalisation, provided consistent returns in 2024 despite global uncertainties. These funds delivered a 1-year absolute return of 16.33%, a 3-year CAGR of 14.43%, a 5-year CAGR of 17.01%, and a 10-year CAGR of 13.26%, reflecting their reliability in generating steady growth over time. With robust corporate earnings and support from sectors like banking, IT, and infrastructure, large-cap funds remain a stable choice for investors in 2025.

Flexi-cap funds: Adaptability across market cycles

Flexi-cap funds excel in navigating volatile markets by investing across large-cap, mid-cap, and small-cap stocks. Their adaptability yielded strong performance in 2024, with a 1-year absolute return of 20.42%, a 3-year CAGR of 15.53.24%, a 5-year CAGR of 18.79%, and a 10-year CAGR of 13.75%. These funds offer a dynamic approach to balancing risk and return, making them an appealing option for 2025, especially as market conditions evolve.

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Value funds: Long-term gains through undervalued stocks

Value funds focus on stocks trading below their intrinsic value, which allowed them to outperform in 2024. These funds recorded a 1-year absolute return of 20.65%, a 3-year CAGR of 20.04%, a 5-year CAGR of 22.14%, and a 10-year CAGR of 14.89%, showcasing their long-term potential. By investing in undervalued companies with strong fundamentals, value funds are well-positioned to capitalize on market rebounds in 2025, offering substantial growth opportunities for patient investors.

Aggressive hybrid funds: Balanced growth with reduced volatility

Aggressive hybrid funds provide a balanced mix of equity and debt, offering growth with reduced risk. In 2024, these funds achieved a 1-year absolute return of 16.82%, a 3-year CAGR of 13.07%, a 5-year CAGR of 15.56%, and a 10-year CAGR of 11.55%, reflecting their ability to perform across market cycles. Their combination of equity exposure for higher returns and debt for stability makes them an ideal choice for investors seeking balance in 2025.

ELSS funds: Tax savings with equity market potential

Equity-Linked Savings Schemes (ELSS) combine tax-saving benefits with equity market growth. In 2024, these funds delivered a 1-year absolute return of 20.31%, a 3-year CAGR of 16.03%, a 5-year CAGR of 18.99%, and a 10-year CAGR of 13.58%, highlighting their strong performance. With their mandatory three-year lock-in and potential for high equity returns, ELSS funds remain a compelling option for investors seeking tax efficiency and long-term growth in 2025.

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Stepping into 2025

The mutual fund landscape in India offers diverse opportunities tailored to varying investor goals and risk appetites. Large-cap funds stand out for their stability, ideal for those seeking consistent returns amid market uncertainties. Flexi-cap funds provide the adaptability needed to navigate dynamic market conditions, while value funds deliver long-term gains by focusing on undervalued yet fundamentally strong companies.

Aggressive hybrid funds offer a balanced growth approach, blending equity’s growth potential with debt’s stability. Meanwhile, ELSS funds remain a preferred choice for tax-saving benefits paired with robust equity market growth.

The performance data from 2024 highlights the strength and resilience of these categories, emphasising the importance of informed decision-making and a diversified investment approach.

With a disciplined strategy and a focus on aligning investments with financial goals, investors can effectively navigate market volatility, optimise returns, and secure their financial future. 2025 presents a promising opportunity to leverage these well-performing mutual fund categories to achieve long-term wealth creation and financial stability.

Rishabh Goel, MD, Tailwind Financial Services

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