101 equity mutual funds doubled money in 5 years; 4 did it in just 3 years. Should you invest now?

The stock market’s two-year no-return phase has dominated investor conversations, but it masks a striking longer-term outcome: more than 100 Indian equity mutual funds have doubled investors’ money over five years, while four achieved the feat in just three years.

Excluding international funds, 101 out of 310 equity schemes with five-year track records generated absolute returns of at least 100%. That means nearly one in three funds doubled investors' money during the period.

Best performing mutual funds

The five-year rankings illustrate the scale of the sectoral rally. ICICI Prudential Infrastructure Fund topped the table with an absolute return of 188%. SBI PSU Fund returned 183%, closely followed by LIC MF Infrastructure Fund at 183%.

Aditya Birla Sun Life PSU Equity Fund delivered 179%, DSP India TIGER Fund returned 176.51% and Nippon India Power & Infrastructure Fund gained 174%. Motilal Oswal Midcap Fund, with a return of 172%, was the highest-ranked diversified mid-cap offering among the leading five-year performers.


HDFC Defence Fund led the three-year rankings with an absolute return of 174.11%. An investment of Rs 1 lakh in the scheme would have grown to about Rs 2.74 lakh.

Bandhan Small Cap Fund followed with 106%, while Quant BFSI Fund returned 101.73% and LIC MF Infrastructure Fund generated 100.24%. SBI PSU Fund narrowly missed the cut with a 99.12% return, followed by UTI Healthcare Fund at 98.54%. HSBC Midcap Fund and Invesco India Midcap Fund returned 97.19% and 97.18%, respectively.

The numbers underline how defence, infrastructure, financial services, smallcap, PSU and healthcare strategies dominated the rankings. But they also raise a more difficult question for investors: Do past outperformers remain attractive today, or does their strong run-up increase the risk of entering after much of the rally has already played out?

“Sector themes tend to move in cycles and capturing superior returns requires getting both the entry and exit timing right, which is difficult for most investors,” Feroze Azeez, Joint CEO at Anand Rathi Wealth, told ET Markets.

Also Read | Largecap funds no longer the best bet? Edelweiss CIO Trideep Bhattacharya explains why flexicaps may win now

The recent return profile of several winners is substantially weaker. Over two years, ICICI Prudential Infrastructure Fund returned only 5.28%, SBI PSU Fund gained 0.75% and LIC MF Infrastructure Fund delivered 5.40%. Aditya Birla Sun Life PSU Equity Fund declined 0.93%, while Invesco India PSU Equity Fund—despite a five-year return of 160.68%—lost 7.49% over two years.

HDFC Infrastructure Fund returned 152.26% over five years but declined 3.51% over two years. DSP India TIGER Fund’s 176.51% five-year gain contrasts with a 6.54% return over the shorter period.

What should investors do now?

That divergence is a reminder that a fund can retain impressive long-term numbers even after its underlying theme has entered a period of consolidation. Investors buying solely on the basis of five-year rankings could therefore be entering at a very different point in the cycle than those who generated the headline returns.

Azeez attributed the earlier outperformance to policy support and earnings growth. Defence and infrastructure companies benefited from sustained government capital expenditure, including a record Rs 1.8 lakh crore capital allocation for the defence ministry in FY26 and spending under the National Infrastructure Pipeline.

Healthcare gained from India’s expanding role as a global pharmaceutical manufacturing hub, rising exports and production-linked incentives. PSU and small-cap stocks also rallied as corporate earnings improved.

The long-term drivers remain favourable, according to Azeez, but that does not mean the previous pace of returns can be extrapolated.

“A meaningful part of the recent rally has already been captured,” he said.

Also Read | Stocks, gold and debt: Why ICICI Pru’s Dharmesh Kakkad favours a multi-asset strategy now

Healthcare and infrastructure could retain healthy earnings-growth potential over the next two to three years, while defence and PSU companies have sufficient earnings visibility to support further growth, Azeez said. Their performance, however, is likely to remain cyclical rather than move in a straight line.

Smallcaps may also offer long-term potential after the correction. Azeez described the Nifty Smallcap 250 as having “negative froth” of 15.5% at current levels, with earnings expected to grow about 20% in FY27 and 18% in FY28.

Valuations across the Nifty 50, Nifty Midcap 150 and Nifty Smallcap 250 have become more reasonable following the correction, he said. But investors should avoid assuming that a more favourable valuation automatically makes the previous winners the best vehicles for the next cycle.

“Investing after a strong rally often increases the risk of entering at the peak,” Azeez said.

For most retail investors, he recommends accessing the underlying opportunities through diversified equity funds rather than making concentrated bets on individual sectors. Flexi-cap, multi-cap, large-and-mid-cap, small-cap, focused and dividend-yield funds can invest across financial services, healthcare, consumer businesses, technology and energy while changing allocations as market conditions evolve.

Such funds may still benefit from defence, infrastructure, healthcare or PSU growth without leaving investors dependent on the fortunes of a single theme. The fund manager, rather than the investor, also takes responsibility for increasing or reducing sector exposure as valuations and earnings prospects change.

Chandraprakash Padiyar, Senior Fund Manager at Tata Asset Management, said the current earnings cycle remains relatively early, with scope for companies whose earnings potential is yet to be fully reflected in valuations.

Tata Asset Management has been building positions in potential re-rating candidates across the large- and mid-cap segments over the past year, adding companies from healthcare, power and financial services. It remains overweight on financial services, chemicals, construction materials, FMCG and telecom.

“We believe the current earnings cycle remains at a relatively early stage and investors need to have a medium-to-long-term view given the current market conditions,” Padiyar said.

Shridatta Bhandwadar, CIO–Equities at Canara Robeco Asset Management, also sees opportunities, particularly in large-caps. He considers valuations of about 17-17.5 times estimated FY28 earnings reasonable compared with historical levels.

“While near-term volatility may persist amid geopolitical developments and monsoon-related uncertainties, we believe such phases continue to present attractive opportunities for investors with an 18–24 month investment horizon,” Bhandwadar said.

Canara Robeco remains overweight on financials, consumer discretionary, select automobile companies, pharmaceuticals, hotels and telecom.