Which fund categories did the best since 2020 pandemic?

13 May 2025 , 02:18 PM

WHICH MUTUAL FUNDS OUTPERFORMED POST-PANDEMIC?

May 2025 marks a full five years since the post-pandemic recovery started and gathered steam. That is a good time to look back at which are the mutual funds that have done well in this five year period. Of course, looking purely at CAGR returns would only give us part of the picture as it ignores the risk aspect. Hence, we look at the best fund categories based on risk adjusted returns. Instead of the standard deviation, we have used range as the denominator for arriving at the risk adjusted returns. To avoid mixing apples and oranges, we have ring-fenced each category; including breaking up equity funds into thematic funds and generic funds. The ranking by risk-adjusted returns is within each category. The rankings matter more than the actual risk-adjusted returns, as it gives a relative picture.

GENERIC EQUITY FUNDS: RANKED ON 5-YEAR RISK-ADJUSTED RETURNS

These are the seven categories of generic equity funds based on market cap. Here is how they rank on risk-adjusted returns.

Active Equity Funds – MCAP	Average	Best	Worst	Range	Risk-Adj Returns
Large & Mid- Cap	25.96	31.66	18.65	13.01	1.9954
Multi-Cap	27.06	34.11	20.25	13.86	1.9524
Large-Cap	22.08	28.68	16.46	12.22	1.8069
Mid-Cap	30.00	39.27	22.13	17.14	1.7503
Small-Cap	34.28	48.83	28.41	20.42	1.6787
Flexi Cap	23.38	34.96	16.21	18.75	1.2469
ELSS (Tax Savings)	24.13	35.71	15.19	20.52	1.1759

Data Source : Morningstar

The interesting theme from the above rankings appear to be that while small caps and mid-caps may have topped on pure returns, it is equity allocation that has given the best risk-adjusted returns. Concentration gives higher returns but comes with higher risk. In this case, the best performers; large & mid-cap funds and multi-cap funds are both cases of splitting the allocation between large caps, mid-caps, and small caps. The low ranking of flexi-caps goes to show that discretion in allocation is not really adding much value to the investors.

THEMATIC EQUITY FUNDS: RANKING ON 5-YEAR RISK-ADJUSTED RETURNS

These are the 10 categories of thematic equity funds based on sectoral and strategic themes. Here is how they rank on risk-adjusted returns.

Active Equity Funds – Thematic	Average	Best	Worst	Range	Risk-Adj Returns
Sector – FMCG	17.61	18.87	17.04	1.83	9.6230
Sector – Technology	28.81	31.88	23.99	7.89	3.6515
Equity – ESG	21.93	22.63	16.13	6.50	3.3738
Contra	26.99	36.56	25.62	10.94	2.4671
Sector – Healthcare	21.52	25.89	16.71	9.18	2.3442
Sector – Financial Services	25.13	30.29	19.10	11.19	2.2458
Dividend Yield	26.51	35.02	22.20	12.82	2.0679
Value	26.82	35.45	21.32	14.13	1.8981
Equity- Infrastructure	32.79	41.99	24.62	17.37	1.8877
Focused Fund	22.88	32.76	12.89	19.87	1.1515

Data Source : Morningstar

There are some interesting inferences from the above ranking. Low risk themes appear to have outdone the more cyclical themes in terms of risk-adjusted returns. The FMCG risk-adjusted returns may look overstated due to just one fund in that coverage. Once again, the story is the same. More than focusing on enhancing returns, investors must focus on managing the risk. That is where actual risk adjusted returns are coming for equity funds.

HYBRID ALLOCATION FUNDS: RANKING ON 5-YEAR RISK ADJUSTED RETURNS

These are the 5 categories of hybrid allocation funds. Here is how they rank on risk-adjusted returns.

Hybrid Allocation Funds	Average	Best	Worst	Range	Risk-Adj Returns
Balanced Allocation	15.42	18.70	12.28	6.42	2.4019
Aggressive Allocation	20.63	28.87	14.60	14.27	1.4457
Conservative Allocation	10.60	13.85	5.56	8.29	1.2786
Equity Savings	12.12	16.84	6.13	10.71	1.1317
Dynamic Asset Allocation	14.98	27.07	7.32	19.75	0.7585

Data Source : Morningstar

This is largely an extension of the theme we got from generic equity funds. Rule based asset allocation across asset classes works a lot better. While aggressive allocation funds have benefited from their higher equity exposure, the real beneficiary has been the balanced funds, with a rule based and balanced allocation to equity and debt. Once again, discretion based fund classes like Dynamic asset Allocation and Equity Savings are at the bottom.

ACTIVE DEBT FUNDS: RANKING ON 5-YEAR RISK ADJUSTED RETURNS

These are the 14 categories of debt funds; both at the short and long end of the yield curve. Here is how they rank on risk-adjusted returns.

Active Debt Funds	Average	Best	Worst	Range	Risk-Adj Returns
10 yr Government Bond	5.67	6.52	4.93	1.59	3.5660
Government Bond	5.95	7.36	4.10	3.26	1.8252
Ultra Short Duration	5.52	7.40	2.65	4.75	1.1621
Medium to Long Duration	6.11	9.01	3.57	5.44	1.1232
Floating Rate	6.66	10.12	3.30	6.82	0.9765
Money Market	5.62	6.44	0.63	5.81	0.9673
Corporate Bond	6.42	10.76	4.03	6.73	0.9539
Long Duration	6.02	11.67	4.96	6.71	0.8972
Banking & PSU	6.24	7.72	-0.03	7.75	0.8052
Medium Duration	7.40	14.33	3.62	10.71	0.6909
Short Duration	6.65	10.81	0.71	10.10	0.6584
Low Duration	6.25	11.10	1.06	10.04	0.6225
Dynamic Bond	6.37	14.95	2.91	12.04	0.5291
Credit Risk	9.72	27.38	4.84	22.54	0.4312

Data Source : Morningstar

If you look at the last 5 years, we have seen a phase of persistent rise in interest rates and then some fall in bond yields. However, despite this rate volatility, the longer duration funds like gilt funds have outperformed. It is not about returns, once again, but about the low volatility risk in these funds. At the extreme, look at credit risk funds, wherein the returns are the best in class, but then the volatility in returns is so high that they rank at the bottom on risk-adjusted returns. Once many of the discretion based funds are at the bottom, largely because they have taken a disproportionate amount of risk to higher returns.

ALTERNATE FUNDS: RANKING ON 5-YEAR RISK ADJUSTED RETURNS

These are the 3 categories of diverse but alternate fund classes. Here is how they rank on risk-adjusted returns.

Alternate Funds	Average	Best	Worst	Range	Risk-Adj Returns
Sector – Precious Metals	14.52	15.04	13.75	1.29	11.2558
Arbitrage Fund	5.40	6.36	3.24	3.12	1.7308
Liquid	5.32	55.12	0.00	55.12	0.0965

Data Source : Morningstar

Over the last 5 years, the precious metals (Gold and Silver Funds) have not only been the best among the alternate funds, but also among all funds. You have above average returns with absolute low volatility. That is largely because there is little to differentiate between the strategy of one fund and another, as their returns are predominantly determined by the price movement of gold and silver. Interestingly, both have been on a massive bull run in the last five years, and that is showing in the returns. Among other categories, the low volatility of performance of arbitrage fund underline why they are emerging as an alternative to liquid funds for treasury purposes. Overall, winning themes remain the same!