The Indian stock market has been under pressure due to the crisis in West Asia over the past month. However, investors using systematic investment plans (SIPs) have continued to earn decent returns over one, three, and five-year periods.
According to data from Value Research, the category average rolling returns of pure equity mutual fund schemes ranged between 5.60% and 10.08% over the past year (till March 27). This is fairly robust, considering that the Sensex and Nifty declined by 5–7% in FY26. International funds delivered the best one-year performance, with returns of 24.23%.
Momentum and Global Rotation
Over three- and five-year periods, mid- and small-cap categories recorded the highest average rolling returns. Mid-cap funds returned 23.94% and 19.33%, while small-cap funds delivered 27.14% and 21.74%, respectively.
A Balasubramaniam, MD and CEO of Aditya Birla Sun Life Mutual Fund, attributed the strong performance of international funds to the rotation of foreign institutional investor (FPI) inflows into emerging markets (besides India), driven by attractive valuations and overall stronger performance. He also noted that the rally in select FAANG stocks such as NVIDIA and Alphabet was supported by the growing momentum in artificial intelligence (AI).
Among domestic-focused schemes, mid-cap funds offered the highest average returns of 10.08% across 55 schemes in FY26. Multi-cap funds and sectoral & thematic funds followed, delivering average one-year returns of 9.22% and 8.81%, respectively. Large-cap schemes recorded an average return of 8.55% across 147 schemes.
D P Singh, Joint CEO of SBI Mutual Fund, said the strong performance of mid-cap funds was driven by higher inflows into the category, particularly into companies perceived as future business leaders.
Echoing this view, Arihant Jain, Portfolio Manager at Franklin Templeton Mutual Fund, said, “The earnings recovery in mid-cap stocks in FY26 led to better performance compared to large- and small-cap stocks.”
Small-Cap Reality Check
Small-cap funds, however, underperformed during the year, emerging as the category with the lowest average rolling return in FY26 (5.60%) across 45 schemes. Experts attribute this to a correction in the segment over the past two years. Notably, the benchmark Nifty Smallcap 250 Index delivered a negative return of -1.11% in FY26.
“Small-cap underperformance largely reflects valuation fatigue after two years of outsized gains, along with a clear investor shift toward earnings resilience amid volatile macroeconomic conditions,” said Trideep Bhattacharya, President and CIO (Equity), Edelweiss Asset Management.
Bhattacharya added that he remains cautious on small caps in the near term: “FY27 could see a recovery if earnings breadth improves. However, in the near term, we remain selective within small caps and continue to prefer mid-cap, flexi-cap, and international strategies, where growth visibility is stronger and valuations remain relatively reasonable.”
Singh also noted that small caps lagged due to liquidity constraints and elevated valuations in constituent stocks.
However, over a longer horizon, small-cap schemes have continued to deliver the highest returns. Over three- and five-year periods, they generated returns of 27.14% (22 schemes) and 21.74% (14 schemes), respectively.
Dikshit Mittal, Senior Fund Manager (Equity) at LIC Mutual Fund, remains optimistic about the category over a three- to five-year horizon. He said that although long-term return profiles have moderated due to recent corrections, aggregate earnings remain resilient, supported by healthy balance sheets.
Among other asset classes, multi-asset allocation funds benefited from a rally in commodity prices, delivering an average one-year rolling return of 12.93% across 34 schemes. In the debt category, credit risk funds also performed well, offering an average return of 9.77% across 15 schemes.