Precious metals funds stood out in a tough year

4 Sep 2025 , 11:21 AM

A TOUGH YEAR; BUT PRECIOUS METALS COME OUT SHINING

The last 1 year has been tough for equity funds with most categories struggling. Barring financial services funds and healthcare funds, all other categories delivered negative average returns in last one year, with fairly large divergence in returns. The equity challenge also got extended to hybrid funds, while debt funds struggled with volatility factor.

Here, we look at best performing mutual funds by categories. However, not just returns; we look at risk-adjusted returns. Instead of standard deviation, we use range as a measure of dispersion risk. Risk-adjusted returns help understand if the top performers are generating returns by taking on higher risk or through the fund manager skill. Here is a quick dekko.

GENERIC EQUITY FUNDS: RANKED ON 1-YEAR RISK-ADJUSTED RETURNS

Here is the ranking of 7 categories of generic equity funds based on market cap.

Active Equity Funds – MCAP	Average	Best	Worst	Range	Risk-Adj Returns
Multi-Cap	-2.53	16.88	-15.64	32.52	-0.0778
Mid-Cap	-2.28	10.56	-15.71	26.27	-0.0868
Large & Mid- Cap	-2.51	8.46	-14.65	23.11	-0.1086
Flexi Cap	-3.06	5.82	-19.95	25.77	-0.1187
ELSS (Tax Savings)	-3.37	12.21	-13.33	25.54	-0.1319
Large-Cap	-3.15	9.25	-10.19	19.44	-0.1620
Small-Cap	-4.47	3.94	-11.33	15.27	-0.2927

Data Source: Morningstar

First and foremost, one needs to take the risk-adjusted returns with a pinch of salt as all categories of generic equity funds have given negative average returns in last one year. However, there are some takeaways from the data. For instance, Multi-Caps and Mid-Caps have emerged at the top because mid-cap stocks have done better in terms of sales and profit performance in recent quarters. Mid-caps have outshone large caps and small caps; and that is reflected in these numbers. You find large caps and small caps at the bottom, which reflects fundamental stress. At a macro level, generic equity funds have disappointed the street in last 1 year.

THEMATIC EQUITY FUNDS: RANKING ON 1-YEAR RISK-ADJUSTED RETURNS

Here is how the 11 categories of thematic equity funds rank on risk-adjusted returns.

Active Equity Funds – Thematic	Average	Best	Worst	Range	Risk-Adj Returns
Sector – Financial Services	3.73	12.27	-3.52	15.79	0.2362
Sector – Healthcare	0.52	12.70	-11.54	24.24	0.0215
Focused Fund	-3.09	7.16	-16.75	23.91	-0.1292
Equity – ESG	-4.27	-0.34	-15.19	14.85	-0.2875
Value	-7.14	1.98	-14.61	16.59	-0.4304
Dividend Yield	-6.68	0.10	-12.77	12.87	-0.5190
Contra	-2.52	-0.76	-5.36	4.60	-0.5478
Equity- Infrastructure	-7.36	-0.74	-13.87	13.13	-0.5605
Sector – Technology	-12.98	1.35	-17.38	18.73	-0.6930
Sector – FMCG	-1.56	-7.59	-8.97	1.38	-1.1304
Sector – Energy	-12.64	-2.04	-12.39	10.35	-1.2213

Data Source: Morningstar

The only two themes that delivered positive returns in the last on year were Financial Services and Healthcare and they appear at the top on risk adjusted rankings. While healthcare did see a high degree of volatility, performance of financial services was a lot more stable. Ironically, tech and FMCG ended up at the bottom. While the former was hit by global tech-spend uncertainty, the latter was more about weak urban demand. Energy stocks continued to struggle crude price volatility due to geopolitical risks.

HYBRID ALLOCATION FUNDS: RANKING ON 1-YEAR RISK ADJUSTED RETURNS

Here are 5 categories of hybrid allocation funds and their rank on risk-adjusted returns.

Hybrid Allocation Funds	Average	Best	Worst	Range	Risk-Adj Returns
Conservative Allocation	4.49	8.26	-1.32	9.58	0.4687
Balanced Allocation	2.56	5.74	-1.27	7.01	0.3652
Equity Savings	3.98	7.98	-4.01	11.99	0.3319
Dynamic Asset Allocation	0.03	6.43	-11.80	18.23	0.0016
Aggressive Allocation	-0.45	6.48	-7.57	14.05	-0.0320

Data Source: Morningstar

In the hybrid space, the bias has been in favour of funds that have a higher debt component, while the more equity-oriented funds have not only seen negative average returns, but also rank lower on risk-adjusted returns. Many of the BAFs and Equity Savings funds have raised their exposure to non-equity assets, which has also helped them deliver in terms of risk-adjusted returns.

ACTIVE DEBT FUNDS: RANKING ON 1-YEAR RISK ADJUSTED RETURNS

Here are the 14 categories of debt funds and their rank on risk-adjusted returns.

Active Debt Funds	Average	Best	Worst	Range	Risk-Adj Returns
Medium to Long Duration	6.46	7.72	3.43	4.29	1.5058
Banking & PSU	7.78	9.16	3.70	5.46	1.4249
10 yr Government Bond	7.41	8.39	2.70	5.69	1.3023
Medium Duration	7.97	13.53	3.86	9.67	0.8242
Dynamic Bond	5.96	8.47	1.03	7.44	0.8011
Floating Rate	7.96	13.35	3.13	10.22	0.7789
Money Market	7.13	11.58	1.51	10.07	0.7080
Ultra Short Duration	7.18	10.88	-0.55	11.43	0.6282
Short Duration	8.20	13.76	-0.20	13.96	0.5874
Credit Risk	10.49	23.10	4.48	18.62	0.5634
Corporate Bond	7.90	14.97	0.54	14.43	0.5475
Government Bond	5.44	8.33	-2.06	10.39	0.5236
Low Duration	7.56	16.01	-0.08	16.09	0.4699
Long Duration	3.01	10.75	-5.22	15.97	0.1885

Data Source: Morningstar

For a change, debt funds have done better than equity funds in the last one year with all the categories delivering positive average returns in this period. The funds that have gained the most are the longer-term funds, which have benefited from falling bond yields. RBI cut rates by 100 bps between February 2025 and June 2025, which led to a meaningful outperformance by longer duration debt funds.

ALTERNATE FUNDS: RANKING ON 1-YEAR RISK ADJUSTED RETURNS

Here are the 3 categories of alternate fund classes on risk-adjusted returns.

Alternate Funds	Average	Best	Worst	Range	Risk-Adj Returns
Sector – Precious Metals	44.51	47.36	43.91	3.45	12.9014
Arbitrage Fund	6.41	7.51	-2.52	10.03	0.6391
Liquid	6.20	64.85	-0.43	65.28	0.0950

Data Source: Morningstar

Over the last 1 year, the precious metals (Gold and Silver ETFs) have not only been the best among alternate funds, but also among all funds. These precious metals funds have delivered over 44% returns on an average with very low dispersion levels. While silver ETFs gained from a favourable gold-silver ratio, the gold ETFs also gained from central bank buying and from de-dollarization. For the first time; gold has not only beaten equities in the last 1 year, but also in terms of CAGR returns over the last 20 years. Clearly, it is the precious metals story that has truly glittered.