The Indian stock market witnessed a sharp decline in the last two quarters of FY2025, but now the market seems to be picking up some pace. In the last one month, frontline indices have shown signs of a revival in investor sentiment, especially after the lows hit post US President Trump’s tariff imposition announcements. This market recovery has reflected on mutual funds, helping some fund categories deliver impressive returns. Notably five of MF categories – Sectoral-Banking, Thematic-Consumption, Thematic-ESG, Midcap, and Large & Midcap, have given up to 5.07% average returns in the last one month.
So we can see that of the five top-performing mutual fund categories in the last one month, three of them are sectoral/thematic funds category – banking, consumption and ESG. These sectoral/thematic fund categories have seen 5.07%, 4%, 2.41% average growth, respectively. The other two top performers among five are midcap and large & midcap categories.
Also read: International mutual funds crash amid Trump tariff woes — Should you exit now?
Performance of Midcap and Large & Midcap Categories
In the last one month, the Midcap and Large & Midcap categories have delivered over 2% average returns, nearly matching benchmark indices Sensex and Nifty returns. So, investors in these categories now getting good returns, especially now when the market is rebounding.
Now, take a look at 3 top performing funds in each of these categories based on their 1 month returns:
Equity: Sectoral-Banking – Top 3 mutual funds with returns up to 6.48% in 1 month
1. Sundaram Financial Services Opportunities Fund (6.48%)
2. HDFC Banking & Financial Services Fund (6.29%)
3. Tata Banking and Financial Services Fund (6.16%)
Equity: Thematic-Consumption – Top 3 mutual funds with returns up to 6.25% in 1 month
1. Nippon India Consumption Fund (6.25%)
2. Tata India Consumer Fund (5.22%)
3. Sundaram Consumption Fund (5.16%)
Equity: Thematic-ESG – Top 3 mutual funds with returns up to 3.87% in 1 month
1. Quant ESG Equity Fund (3.87%)
2. ICICI Prudential ESG Exclusionary Strategy Fund (2.85%)
3. WhiteOak Capital ESG Best-In-Class Strategy Fund (2.71%)
Equity: Midcap – Top 3 mutual funds with returns up to 2.82% in 1 month
1. Taurus Mid Cap Fund (2.82%)
2. Nippon India Growth Fund (2.62%)
3. Invesco India Mid Cap Fund (2.61%)
Equity: Large & Midcap – Top 3 mutual funds with returns up to 2.82% in 1 month
1. Invesco India Large & Mid Cap Fund (3.56%)
2. Mahindra Manulife Large & Mid Cap Fund (3.05%)
3. Quant Large and Mid Cap Fund (2.60%)
(Source: Value Research)
Also read: 4 Motilal Oswal funds are dominating! 1-year returns leave peers far behind
As we have seen over the last one month, most of the top-performing mutual funds have come from the sectoral and thematic categories. This makes it important to understand the risks and benefits of investing in such funds and to identify the type of investors they are best suited for.
Sectoral and Thematic Funds: Are they right for every investor?
Sectoral and thematic funds attract special attention of people, especially when a particular sector or theme is seen booming in the market. But remember, where there is an expectation of high returns, there is also high risk. In such a situation, it is important that we first understand what these funds are, what is the risk in them and which investors should invest in them.
What are sectoral and thematic funds?
Sectoral funds invest in a particular sector. Such as – banking, IT, ESG, pharma, infrastructure or FMCG. If you have invested money in an IT sector fund, then that fund will invest only in the shares of IT companies. Meaning, if that sector performs well, then the profit will also be good. But if the sector slips, then it is certain to suffer a loss.
Thematic funds are a bit broader. These invest on the basis of a specific theme, which can cover more than one sector. For example, ESG (Environmental, Social, Governance) fund – it invests in companies that follow environmental, social responsibilities and good corporate governance, irrespective of the sector.
What is the risk?
The biggest risk in these funds is concentration risk, that is, all your money is based on a few selected sectors or themes. If the movement of that sector or theme deteriorates, then the health of your investment can also deteriorate. There is a lack of diversification in it, which increases the risk compared to other equity mutual funds.
Who are these funds for?
Sectoral and thematic funds are not for every investor. These are better suited for those:
-who have a deep understanding of the market
-who are willing to take risks
-and whose investment horizon is 5 years or more
If you are a new investor, or you do not have knowledge of a particular sector, it is better to start with diversified equity funds or index funds first.
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.