Synopsis

Mutual fund returns show significant differences between top and bottom performers. The flexi-cap category saw a wide gap between gains and losses. Small-cap funds also displayed considerable divergence in their yearly performance. Market trends favored stock-specific bets and certain sectors over traditional ones. Investors must understand fund styles and team track records for better selection.

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Some distributors said the gap tends to narrow over longer periods.

Mumbai: Returns from mutual fund schemes over the past year show a wide gap between the best- and worst-performing funds across categories, underscoring the importance of scheme selection for investors.

In the flexi-cap category, the largest by assets under management (AUM), the top-performing scheme, Quant Flexi Cap Fund, returned 12.29% over the past year, while the worst performer, Samco Flexi Cap Fund, lost 5.75%.

The divergence was even wider in the small-cap category, where Trust Small Cap Fund gained 27.39%, while Tata Small Cap Fund fell 5.08%.

Wealth managers said the divergence reflects a market that has rewarded stock-specific bets, while traditional sectors such as banks and information technology have lagged. Segments such as defence, power and capital markets, on the other hand, have outperformed.

Read more: AI selloff knocks South Korea, Taiwan down global market cap rankings

"The markets have rewarded stock pickers in the last year, with individual stocks in new age sectors getting bigger," says Sandeep Bagla, chief executive officer, Trust Mutual Fund. "Portfolios with allocation to companies in defence, data centre, premium consumption and financialisation of savings did well, while those in private banks, traditional IT lagged."

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specific bets work Sectors such as banks & IT lagged; defence, power & capital markets outperformed: wealth managers

Selecting the right fund has been a challenge for investors as it goes beyond shortlisting investments based on past returns alone.

"Investors need to understand the style of investing, track record of the investment team in terms of which cycle they are able to play well, portfolio construct and suitability, analyst team strength and coverage universe of stocks," says Nirav Karkera, head of research at W by Groww.

Some distributors said the gap tends to narrow over longer periods. "Fund managers use strategies that work out over a period of time. Investors who go through a full cycle will see return differentials between schemes narrow over a 3-5 year period," explains S Shankar, CFP, Credo Capital, a mutual fund distributor.