Mutual Fund Asset Class Returns 31Dec2025 15Jan2026
(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 20Oct2024 on the same topic.
Table 1: Asset return matrix - Trailing returns (from 3-month to 10-year data as of 31Dec2025) >
Note: three-month data are not annualised; whereas 3-year, 5-year and 10-year data are annualised >
Please click on the image to view better >
Table 1 above reveals:
> asset class returns are cyclical in nature
>
In the past one year, gold has delivered the best return of more than 70 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 quarters and also it reflects an element of rupee depreciation versus the US dollar
> on a 3-year and 5-year basis, gold and equity international categories 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 three years
AUM significance
Adding AUM (assets under management as on 31Dec2025) gives context to returns by showing where investor money actually sits, not just what returns were theoretically achieved.
Large asset size signals investor confidence, liquidity and scalability, while low AUM despite good returns often reflects hidden risks, complexity or past adverse events.
In debt and hybrid funds, higher AUM indicates that investors prefer safer, more predictable return profiles and capital protection rather than taking additional risk for slightly higher returns.
Overall, AUM shows which categories are core, scalable portfolio components versus tactical or niche allocations.
In the equity segment (excluding thematic and sector funds), the largest assets are concentrated in flexi cap, mid cap, large cap and small cap categories, reflecting their role as core, diversified equity allocations.
In the debt segment, the three biggest categories by AUM are: liquid, money market and corporate bond categories.
And in the hybrid category, the three biggest AUMs are from: dynamic asset allocation, arbitrage and aggressive hybrid.
Table 2: Asset return matrix - Annual returns - from 2016 to 2025 >
Please click on the image to view better >
What table 2 above reveals is:
> gold has provided decent to spectacular returns between 2019 and 2025, except in calendar year 2021
> in fact, gold as an asset class has done extraordinarily well in 2025
> equity international category has done well since 2016, though in calendar years 2018 and 2022, it has not performed well
> among debt categories, credit risk funds have done well with a return of 10.3 per cent in 2025
>
in calendar year 2025, equity funds exposed to Indian stocks have disappointed, while international funds have done well
> large-caps had negative or near-zero years (2018, 2022) but remained resilient, while mid- and small-caps show extreme swings and deep drawdowns
Mutual Fund Categories with Similar Returns - data as of 31Dec2025
The key intent is to show which categories have delivered similar long-term outcomes despite different labels, and how volatile those paths were year to year.
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 (debt category)
5. Flexi cap and ELSS funds (both equity category)
>
3-, 5- and 10-year annualised returns of Aggressive hybrid funds are
14.6, 14 and 12 per cent respectively; and those of Large cap equity
funds are 15.5, 15.1 and 13.2 respectively (see table 1 above) -- the returns of these two categories are close
> this indicates that aggressive hybrids, despite lower equity exposure, have historically delivered equity-like long-term returns with lower volatility
> most debt categories converge tightly in long-term returns; showing that over a full rate cycle, category distinctions matter less than duration and credit discipline
>
likewise, 3-, 5-, 10-year annualised returns of Arbitrage funds are
6.8, 5.6 and 5.7 per cent respectively; and those of Liquid funds are
6.8, 5.7 and 6 per cent respectively
> the similarity between ELSS and flexi cap performance likely reflects their shared long-term orientation and conservative fund management, focused on durability and downside control rather than short-term aggression
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, 2022 and 2025 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 and offer superior post-tax returns, 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.
Across both tables, the dominant message is convergence: many different-looking categories deliver similar long-term returns. The real differentiators are volatility, drawdowns and investor behavior rather than headline CAGR.
Asset allocation and staying invested matter more than category selection at the margin.
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.
- - -
-------------------
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 -
Value Research Mutual Fund Monitor - trailing and annual returns
-------------------
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-------------------
Read more:
Blog of Blogs Theme-wise
Weblinks and Investing
India Fixed Income Data Bank
Indian Economy Data Bank
India Forex Data Bank
Who is Eating my Gold ETF Return? (gold data / gold ETF data)
JP Morgan Guide to Markets 28Feb2025
Corporate Groups and Listed Companies 29Dec2024
Corporate Governance Concerns - Indian Companies 13Dec2024
Stocks and Peer Comparison by Industry 16Feb2024
various uploads on Scribd by VRK100
NSE Emerging Indices Fundamentals Comparison 31Dec2025 (NSE Indices / Nifty Indices)
NSE Indices Calendar Year Returns 2006 to 2025 07Jan2026
FPIs Said Goodbye, Retail Kept Mum, DIIs Stayed Strong: India’s 2025 Market Story 02Jan2026
BSE 500 versus Nifty 500: Same Market, Different Indices 02Jan2026
Central Banks Fuel Gold Speculation: Risking Pain for Ordinary People 23Dec2025
Hedge Your Wealth: Protecting Your Portfolio Against Rupee Depreciation 20Dec2025
Tracking the Dollar Index to Understand Dollar-Rupee Moves 18Dec2025
How Often Does a Falling Rupee Drag the Sensex Down? The Surprising Patterns 12Dec2025
NSE's Backtesting Claims Child Indices Beat Parent Indices - But Does It Hold in Real World? 09Dec2025
India's Dangerous Drift Toward Market Concentration and Corporate Power 07Dec2025
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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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