Best Mutual Funds to Consider in 2025

In 2025, so far, the Nifty 50 index has delivered 5.7% absolute returns.

The Nifty Midcap 150 Index and the Nifty Smallcap 250 Index, have posted 2.6% and -2.6% returns. In other words, the indices have disappointed.

That said, the long-term returns have been appealing with small and midcaps outperforming the largecaps.

Of late, the Indian equity market has been volatile. The two reasons are the uncertainty due to US President Donald Trump's tariff policies, and geopolitical tensions.

Besides, valuations of the overall market as well as specific stocks too are a concern.

The impact of all this is also seen in the returns of various equity mutual funds. Not all equity mutual funds would be suitable now; a thoughtful choice is necessary.

In this editorial, we will find out the best subcategories of mutual funds to consider now in 2025.

Here's the list...

#1 Large Cap Funds

Large cap funds invest predominantly in the top 100 companies in terms of market capitalisation.

These are usually well-established, bluechip companies with good financials. They are also market leaders with economic moats and are run by efficient and ethical managements.

In an overheated market and when there is high volatility, investing in such companies is sensible.

While the Indian equity market holds the potential to ascend further, the largecap segment offers a better margin of safety.

Large caps funds are a meaningful choice to get a diversified exposure to bluechip companies.

You could benefit from steady growth of capital over the long run without being exposed to very high risk. It is important to keep a time horizon of at least 3 years when investing in large cap funds.

Some examples of large caps funds are Aditya Birla Sun Life Front Equity Fund, SBI BlueChip Fund, ICICI Prudential Bluechip Fund, HDFC Large Cap Fund, DSP Top 100 Equity Fund, etc.

#2 Value Funds

These funds follow a value investment strategy and are required to maintain a minimum 65% investment in equity & equity-related instruments.

The investments could be across market capitalisations and sectors as long as a value investing style is followed.

Value funds aim to pick undervalued stocks, i.e., the stocks whose current market price is lower than their intrinsic/fair value that have strong fundamentals and good growth potential.

Usually, the fund manager uses valuation metrics such as PE ratio, PB ratio, along with profitability ratios such as ROCE, ROE, and ROA, among others to judge the future potential of the stocks.

Given this, value funds are well-positioned from a risk-reward perspective. They may fall less than mid cap and small cap mutual funds during a bear phase and have the potential to do well in the bull phase too.

Amid times of uncertainty, these funds are an appropriate choice to invest for the long term, keeping a time horizon of at least 5 years.

Some examples of value funds are ICICI Prudential Value Discovery Fund, Templeton India Value Fund, HDFC Value Fund, Quantum Value Fund, etc.

#3 Flexi Cap Funds

These equity mutual funds have a versatile investment mandate. They follow a dynamic investment strategy to invest across largecaps, midcaps, and smallcaps.

Depending on the outlook for these market cap segments the fund manager has the flexibility to manoeuvre among largecap, midcap, and smallcap stocks without any restriction as long as 65% of the total assets are in equity and equity-related instruments.

This flexibility helps in capitalising on evolving market dynamics and potentially outperforming the benchmark index.

In current market conditions, there could be wealth creation opportunities across market cap segments. Flexi cap funds could be a good way to diversify your mutual fund portfolio.

If the market corrects, higher allocation to largecaps in the flexi cap fund could add stability. On the other hand, if the market moves up and midcap and smallcaps rally faster, then it could potentially reward you with higher gains depending on allocation to smaller companies.

Flexi cap funds should be considered with at least a 5-year horizon.

Some examples of flexi cap funds are Parag Parikh Flexi Cap Fund, JM Flexi Cap Fund, ICICI Prudential Flexi Cap Fund, HDFC Flexi Cap Fund, Invesco Flexi Cap Fund, etc.

#4 Aggressive Hybrid Funds

These are hybrid funds investing a predominant portion (65% to 85%) of their total assets into equities and the remaining (20% to 35%) in debt & money market instruments.

The objective is to generate long-term capital appreciation and current income from a portfolio that is invested in equity and equity-related securities as well as in fixed-income securities.

In an uncertain market environment where there could be volatility, aggressive funds potentially offer some balance.

Amid times when interest rates are moving down, the debt portion of the portfolio of these funds is expected to fare well. This is because of the inverse relation between interest rates and bond prices. When interest rates fall, bond prices, and thus the NAVs of debt funds go up.

You can consider aggressive hybrid funds if you have a moderate-to-high risk appetite and an investment horizon of 3-5 years.

Some examples of aggressive hybrid funds are ICICI Prudential Equity & Debt Fund, UTI Aggressive Hybrid Fund, HDFC Hybrid Equity Fund, Tata Hybrid Equity Fund, SBI Equity Hybrid Fund, etc.

#5 Multi Asset Allocation Funds

These funds are again hybrid and invest in at least three asset classes - equity, debt, and gold - with at least 10% allocation to each.

Some multi asset allocation funds also take exposure to silver, derivatives, REITs & InvITs, and overseas equities.

The fund manager has the flexibility to dynamically allocate investments in a mix of asset classes depending on the outlook for each of them.

There is usually a low direct correlation among the asset classes - equity, debt and gold. Thus, multi asset allocation funds can potentially protect the downside risk.

The balanced approach adopted by these funds can be meaningful in the uncertain and volatile times we are living in. You could earn optimal returns with exposure to multiple assets at the same time.

You can consider multi asset allocation funds if you are looking for long-term capital appreciation, have a moderately high-risk appetite, and have a time horizon of 3 to 5 years.

Some examples of multi asset allocation funds are ICICI Prudential Multi Asset Allocation Fund, HDFC Multi-Asset Fund, Axis Multi Asset Allocation Fund, SBI Multi Asset Allocation Fund, UTI Multi Asset Allocation Fund, etc.

Performance of Fund Categories

Scheme Name	Absolute (%)	CAGR (%)		Risk Ratios
	1-Year	3-Years	5-Years	SD Annualised	Sharpe	Sortino
Large Cap Funds*	22.62	15.70	19.23	12.54	0.23	0.53
Value Funds*	28.50	21.41	24.75	13.83	0.40	0.80
Flexi Cap Funds*	25.07	17.21	21.64	14.15	0.29	0.60
Aggressive Hybrid Funds*	21.65	15.39	18.89	10.48	0.32	0.69
Multi Asset Allocation Funds*	16.19	15.85	20.05	8.20	0.46	0.93
Benchmark Indices
Nifty 100 - TRI	20.80	14.24	18.67	13.17	0.27	0.59
Nifty 500 - TRI	23.10	16.52	21.18	13.80	0.31	0.66
Nifty 50 - TRI	16.62	12.31	16.89	12.46	0.28	0.64
CRISIL Hybrid 35+65 - Aggressive Index	17.40	12.74	16.09	9.00	0.34	0.76

Source: ACE MF

Conclusion

These funds might be appropriate in the current times.

However, make sure to select the specific scheme carefully.

Also, you would be better off investing in a staggered manner as opposed to doing a one-time lump sum investment.

If you are planning for certain long-term financial goals, taking the SIP (Systematic Investment Plan) route would be a sensible option.

Be a thoughtful investor.

Happy Investing!

# Table Note: Data as of 6 June 2025
*Category average returns considered of all schemes within the respective categories.
Rolling period returns are calculated using the Direct Plan-Growth option. Returns over 1-year are compounded annualised.
Please note, that returns here are historical returns.
Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.

Disclaimer: Past performance is not an indicator of future returns.
The list of schemes is not exhaustive.
The securities quoted are for illustration only and are not recommendatory.
Speak to your investment advisor for further assistance before investing.
Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully.
This article is for information purposes only. It is not a recommendation and should not be treated as such.