Over the years, the belief that ‘Mutual Funds Sahi Hai’ has only grown stronger. It’s now deeply rooted in the way people think about investing. But the past one year might have tested that belief among investors. While investors continued to invest in mutual funds diligently, their returns on investments have remained flat or even turned negative.
Equity market conditions were so challenging that most schemes failed to meet expectations. Benchmark indices Sensex and Nifty have remained flat over the past one year. This is despite a 15% recovery since April 2025. Selling by foreign investors, global economic uncertainty, trade tensions, and geopolitical tensions all weighed heavily on investor sentiment. As a result, most equity funds underperformed.
This is evident from the fact that only two equity mutual funds managed to deliver double-digit returns over the past one year.
These two schemes are –
SBI Banking & Financial Services Fund – 15.66%
Invesco India Financial Services Fund – 10.29%
All other equity schemes have either delivered modest single-digit returns or slipped into the negative zone. Both these funds – SBI Banking & Financial Services Fund and Invesco India Financial Services Fund – have invested in the banking sector, which has been one of the best-performing sectors during this period. Strong credit growth, rising profits and improved balance sheets provided support to this sector.
In contrast, overall equity space remained under pressure over the past year due to several economic and political events globally. Escalating trade tariff tensions, geopolitical instability in Europe and the Middle East and heavy selling by foreign portfolio investors (FPIs) kept Indian stock markets under pressure. Growth in many sectors remained slow domestically as well.
The Sensex and Nifty touched their 52-week lows in April 2025. Although the markets recovered by approximately 15% thereafter, the impact of this recovery has not yet been fully reflected in mutual funds’ performance.
Most fund categories in the red
If we look at various equity mutual fund categories, it is clear that last year was not an easy time for investors.
Only the Sectoral-Banking (10.32%) and Sectoral-Pharma (0.05%) categories remained in the green. All other categories delivered negative returns on average.
Small-cap funds were the worst affected. Of the 32 funds in this category, only five delivered positive returns. Even among these, the best-performing fund rose only 3.46%, while the weakest fund fell by over 8%.
Markets are improving, but recovery is slow
Although markets have seen improvement over the past six months, average mutual fund returns are still low. The 15% gain in benchmark indices since April suggests that a recovery after a decline may be rapid, but its impact on investors’ portfolios will be gradual.
Equity investing works that way; it at times doesn’t give instant results. Markets go up and down, but those who stay invested for the long term usually get good returns.
What should investors do?
Patience is key during such times.
Continue your lump sum investments or SIPs: Units purchased during the decline will benefit you in the long run.
Think long-term: Equity investments should be for 5–7 years or more.
Diversify your portfolio: Don’t invest solely in one sector or theme.
Review weak funds and don’t redeem them in a panic.
The bottom line: Hold on, that’s the real winner
The past year has clearly shown that equity investing isn’t always a straight path. There are ups and downs, but investors who maintain patience emerge as the real winners in the long run.
If your funds have underperformed this year, it’s not the time to despair; it’s the time to maintain confidence in your investment journey.
Because markets may fall, but they always rise over the long term. Patience is the greatest strength in an investment journey.
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.