Mutual Fund Asset Class Returns 02Jun2025
(This
is for information purposes only. This should not be construed as a
recommendation or investment advice even though the author is a CFA Charterholder. Please consult your financial
adviser before taking any investment decision. Safe to assume the author has a vested
interest in stocks / investments discussed if any.)
You could also check a previous blog dated 22Apr2024 on the same topic.
Table 1: Asset return matrix - Trailing returns (from 3-month to 10-year data as of 02Jun2025) >
Note: three-month data are not annualised; whereas 3-year, 5-year and 10-year data are annualised.
Table 1 above reveals:
> asset class returns are cyclical in nature
> In the past one year, gold has delivered the best return of 30.8 per cent of the 20 mutual fund categories selected as above
>
gold's outsized return is mainly
due to the fact that international gold prices have been reaching all
time highs in recent months and it reflects an element of rupee depreciation versus the US dollar
> on a 3-year and 5-year basis, equity small- and mid-cap have provided the best returns
>
multi asset allocation funds (a combination of equity, debt and gold
categories) too have provided decent trailing returns as gold has done well in the past two years and a half
Table 2: Asset return matrix - Annual returns - from 2016 to 2024 >
Please click on the image to view better >
What table 2 above reveals is:
> gold has provided decent to spectacular returns between 2019 and 2024, except in calendar year 2021
> equity international category has done well since 2016, though in calendar years 2018 and 2022, it has not performed well
> however, the best returns, among the select 20 categories, in recent years are from equity mid- and small-cap funds, except in 2022, 2019 and 2018
> in calendar year 2024, debt funds have generated decent returns beating inflation, as inflationary expectations have receded and India's central bank, the Reserve Bank of India, had initiated the process of lower interest rate path
Mutual Fund Categories with Similar Returns - data as of 02Jun2025
Mutual fund categories that tend to provide similar returns over long periods of three years and above are highlighted with thick boxes in the above tables 1 and 2.
As can be observed from trailing returns as well as annual returns, mutual fund categories with similar returns are:
1. Aggressive hybrid and Equity large cap
2. Conservative hybrid and Equity Savings (both hybrid category)
3. Debt funds namely, Banking and PSU, corporate bond, credit risk, dynamic bond, floater and gilt fund
4. Arbitrage funds (hybrid category) and Liquid funds
5. Flexi cap and ELSS funds (both equity category)
> 3-, 5- and 10-year annualised returns of Aggressive hybrid funds are 16.1, 19.3 and 11.7 per cent respectively; and those of Large cap equity funds are 16.7, 21.4 and 12.3 respectively (see table 1 above)
> likewise, 3-, 5-, 10-year annualised returns of Arbitrage funds are 6.6, 5.3 and 5.7 per cent respectively; and those of Liquid funds are 6.8, 5.3 and 6.1 per cent respectively
Some caveats:
In a calendar year, returns from similar categories can vary significantly; however, over longer periods of three years or more, these returns tend to converge.
The returns of these similar categories are not the same in the short term; but they are similar over longer periods.
The returns of these similar categories are not the same in the short term; but they are similar over longer periods.
There is no guarantee the similarity of returns from these categories will hold true in future periods of time.
Credit risk funds aberration: During calendar years 2019 to 2022, credit risk fund return varied in a big way with other debt funds, like, corporate bond funds and dynamic bond funds. In 2019 and 2020, a handful of debt mutual funds suffered heavily due to debt default by companies, like, Vodafone Idea, Adilink Infra & Multitrading Pvt Ltd others.
And some of the debt funds were forced to undertake side pocketing / segregation of the funds.
As such, average returns for credit risk fund slumped to 0.4 and 0.3 per cent in calendar years 2019 and 2020. However, as some of the funds were able to recover most of the monies, credit risk funds category generated superior returns in 2021 and 2022 making up for the earlier losses.
Tax treatment:
In the past five years or so, there have been several changes in capital gains taxes with regard to all mutual fund categories. Investors are better off consulting their tax advisors to better appreciate these capricious tax changes.
Scenario 1: If you're in a 30 per cent+ tax bracket and choosing between arbitrage and liquid funds, consider that both offer similar pre-tax returns. However, arbitrage funds may be more tax-efficient, making them the better choice--if you're comfortable with their equity exposure.
Scenario 2: If you're in a 20 per cent+ tax bracket and deciding between Aggressive Hybrid and Large Cap funds, note that both offer similar pre-tax and post-tax returns. This is because Aggressive Hybrid funds invest 65 per cent or more in equities, while Large Cap funds typically allocate over 95 per cent--qualifying both for equity-like tax treatment.
So, how do you choose? From a behavioural standpoint, Aggressive Hybrid funds may be preferable, as they tend to experience smaller drawdowns during market volatility, making it easier for investors to stay invested long term.
So, how do you choose? From a behavioural standpoint, Aggressive Hybrid funds may be preferable, as they tend to experience smaller drawdowns during market volatility, making it easier for investors to stay invested long term.
While hybrid funds may not always outperform pure equity funds in strong bull markets, their behavioral advantages—especially in managing emotions and maintaining investing discipline—can lead to better investor outcomes over time.
For those prone to reacting emotionally to market swings, hybrid funds offer a valuable blend of growth potential and psychological comfort.
For those prone to reacting emotionally to market swings, hybrid funds offer a valuable blend of growth potential and psychological comfort.
Please check under 'References' at the end of the blog for weblinks of Tweet / X threads on the subject. One can also check other blogs written by the author earlier.
Downside protection:
One key aspect of selecting a mutual fund is to assess whether a particular mutual fund scheme is offering downside protection.
Value Research offers a lot of graphs and tools to investors. For example, please see here and here.
Hybrid funds
Some hybrid funds, such as Balanced Hybrid, Equity Savings, and Dynamic Asset Allocation (also known as Balanced Advantage), invest in a mix of equity and debt instruments.
When equity markets turn volatile, the debt component in these funds often helps cushion the impact, offering downside protection to the overall portfolio.
From a behavioral perspective, during periods of sharp market declines, investors often panic and exit their pure equity funds, potentially missing out on any future recovery.
In this context, hybrid funds can serve as a psychological buffer in volatile times, helping investors stay invested and maintain a long-term orientation.
When equity markets turn volatile, the debt component in these funds often helps cushion the impact, offering downside protection to the overall portfolio.
From a behavioral perspective, during periods of sharp market declines, investors often panic and exit their pure equity funds, potentially missing out on any future recovery.
In this context, hybrid funds can serve as a psychological buffer in volatile times, helping investors stay invested and maintain a long-term orientation.
Certain categories of debt funds have delivered steady returns over longer investment horizons of three to five years. Inflationary pressures are subdued now compared to say, 2010-13 period -- though there were other periods of high inflation during 2020-23 period.
The falling government bond yields between 2013 and now have enabled bond funds in India to generate decent returns in the past decade.
This decent performance enhances the stability of hybrid funds, which invest across equity, debt, and other asset classes. Downside protection is the hallmark of hybrid funds during periods of equity market volatility.
Please check the blog 'Sebi Categorization and Rationalization of Mutual Funds' to know more about the Sebi definition of various mutual fund categories.
Key takeaways
The blog provides data on trailing and annual returns of Indian mutual funds over the past 10 years. By analysing this data and doing their own due diligence, investors can make informed decisions about them.
It also offers insights into mutual fund categories that have historically generated similar returns over longer periods of say, three to five years.
Since investors fall into different tax brackets, it is important to evaluate post-tax returns and consider the tax treatment of each mutual fund category when making investment choices.
Please note: The mutual funds discussed here are intended solely for informational purposes and do not constitute investment advice. Prospective investors are advised to consult their own financial advisors before making any investment decisions.
- - -
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References:
Tweet thread 04Jun2025 Gilt funds vs Dynamic Bond funds
- comparison of returns and risk parameters, data interpretation,
implications of wider range of dynamic bond funds vs narrow range of
gilt funds
Tweet thread 04Jun2025 Chasing maximum returns, dopamine rush, ending up with sub-optimal returns, wide range of returns
Tweet thread 04Jun2025 Flexi cap vs Large Cap funds - wide range of returns on a 1-, 3- and 5-years basis
Tweet thread 04Jun2025 Aggressive Hybrid vs Equity large cap funds - downside
protection, Best & Worst period returns from Value Research,
standard deviation range, risk parameters from Morningstar, etc.
Blog 03Jun2025 Mutual Fund Asst Class Returns with similar returns as on 02Jun2025 -
Tweet thread 03Jun2025 Flexi Cap funds vs Equity Savings funds - Best & Worst period returns - drawdown higher for flexi cap funds
Tweet thread 03Jun2025 Equity Savings funds (hybrid category) vs Dynamic Bond Funds - on a trailing basis over 1- to 10-year periods, Equity Savings funds generated superior returns vs Dynamic Bond funds - standard deviation range from Value Research, data interpretation, etc.
Tweet thread 02Jun2025 Conservative Hybrid funds vs Equity Savings funds
(both hybrid category) - downside protection, Best & Worst period
returns from Value Research, standard deviation range, risk parameters
from Morningstar, etc.
Tweet thread 02Jun2025 Hybrid mutual funds capital gains taxation
Tweet thread 25Dec2024 (new Tweets added in Jun2025 also) Debt mutual funds capital gains taxation - LTCG / STCG tax - gilt funds - dynamic bond funds - liquid funds -
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Disclosure: I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.
Disclaimer: The analysis and
opinion provided here are only for information purposes and should not be construed
as investment advice. Investors should consult their own financial advisers
before making any investments. The author is a CFA Charterholder with a vested
interest in financial markets.
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