The past one year has been difficult for equity investors. Markets were volatile, many stocks corrected sharply, and most equity mutual fund categories struggled to generate decent returns.
Yet, a small set of equity funds stood out.
Despite the weak market mood, five sectoral and thematic mutual funds delivered more than 20 percent returns over the last year. These funds focused mainly on banking & financial services and auto and transportation — two sectors that continued to attract investor interest when the broader market stayed under pressure.
Most diversified equity funds delivered modest or poor returns
Market gains were limited to a few sectors
Sector-focused funds benefited from this narrow leadership
In simple terms, money flowed into select sectors, and funds focused on those areas gained sharply.
Over the last one year:
Banking & financial services funds delivered around 21 percent returns
Auto and transportation funds returned nearly 18 percent
International equity funds topped the list with about 33 percent returns
All other equity categories lagged behind.
Large-cap funds: About 9 percent returns
Flexi-cap, ELSS and mid-cap funds: Less than 5 percent
Small-cap funds: Still under pressure, down nearly 5 percent
Nifty Smallcap 250 index: Down over 7 percent
This shows how tough the year was for smaller companies and broad-based funds.
Quant BFSI Fund – Direct Plan – Growth: 27.14%
DSP Banking & Financial Services Fund – Direct Plan: 25.47%
HDFC Transportation and Logistics Fund – Direct Plan: 24.87%
ITI Banking and Financial Services Fund – Direct Plan: 24.31%
SBI Banking & Financial Services Fund – Direct Plan: 23.80%
Key trend: Banking and financial services dominated the list, with auto-linked stocks also doing well.
Quant BFSI Fund
Took bold and concentrated bets within the financial sector
Strong exposure to insurers, NBFCs and select lenders
Delivered high returns, but with higher volatility
DSP Banking & Financial Services Fund
Focused on large, well-known private and PSU banks
Added insurance and market infrastructure stocks
Balanced approach helped limit extreme risks
HDFC Transportation and Logistics Fund
The only non-banking fund on the list
Gains driven by automobile and auto ancillary stocks
Benefited from steady demand and improving margins
ITI Banking and Financial Services Fund
Bank-heavy portfolio with private and PSU banks
More conservative strategy
Benefited from the rally in frontline banking stocks
SBI Banking & Financial Services Fund
One of the oldest funds in the category
Spread across banks, insurance firms and NBFCs
Used its size and experience to ride the sector uptrend
Sectoral and thematic funds tend to perform well when:
Market leadership is limited to a few sectors
Specific economic or policy trends favour certain industries
These funds focus on where growth is happening, instead of spreading money across many sectors.
Can capture sharp rallies in strong sectors
Higher return potential during favourable cycles
Clear and easy-to-understand investment theme
Sectoral funds are high-risk investments. Key risks include:
--Sharp ups and downs in returns
--Heavy dependence on one or two sectors
--Poor performance when the sector cycle turns
--Strong past returns do not guarantee future performance. Sector leadership keeps changing, and what works today may struggle tomorrow.
--Sectoral and thematic funds are best suited for experienced investors who understand market cycles. For most investors, these funds should form only a small part of the portfolio, with the main investment remaining in diversified equity funds.
(Disclaimer: Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.)