In the continuous market fall over the past six months starting from late September 2024, it is interesting to note how equity mutual funds – specifically large, mid, small and flexi caps – performed vis-à-vis their respective benchmarks.

Surprisingly, it is the small cap funds that have come on top. All the 28 active small cap funds beat the Nifty Smallcap 250 TRI over the September 2024-February 2025 period, during which the index fell a little over 26 per cent.

With funds investing in 100-200 stocks or more, adding large caps to the mix and taking significant cash positions (10 per cent or more in some cases), it has been possible for the category schemes to outperform the Nifty Smallcap 250 TRI.

Large caps came second in the list as 22 of the 32 schemes in the category (nearly 7 in 10) outperformed the Nifty 100 TRI. One of the key strategies that worked for the outperforming funds was being overweight on select banking and financial services players. Given that banking and financial services were among the best performers in this correction, these funds gained from the traction in those stocks. Cash and arbitrage strategies also helped contain downsides for these funds.

As far as flexi cap funds are concerned, 23 of the 39 funds (less than 6 in 10)  managed to beat the Nifty 500 TRI from the September 2024 peak to the February 2025 trough.

The funds that relied heavily on large caps in their mix, took cash positions (over 15 per cent in some cases) and went light on mid or small caps did well.

The worst performance came from midcap funds in this turbulent period. Of the 29 active funds in the category, only 15 outperformed the Nifty Midcap 150 TRI. Given that many stocks that took a significant knock in this period such as those in defence, infrastructure, real estate, software, e-commerce, small finance bank segments took a big hit in this fall, these funds may have found it difficult to contain downsides.

Of course, this analysis is just to highlight the winners and laggards in this period alone. Investors must obviously study the long-term track records of funds and carefully consider rolling returns and consistency in beating benchmarks to zero in on the best schemes.

Published on April 16, 2025