These funds delivered over 25% CAGR in 5 years

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Small-cap funds take the lead

It’s been an outstanding five years for small-cap mutual funds. Investors who entered the right schemes around mid-2020 are now sitting on five-year compounded annual growth rates (CAGR) of over 35% in some cases. One fund in particular has touched 35.61%, with others closely trailing at 32–34%. These are not isolated cases—the entire small-cap segment has seen a broad rally.

This performance has outshone not just large-cap and flexi-cap peers, but also outperformed many traditional investment avenues. The returns are even more impressive when you consider the market volatility in between. Those who invested consistently through SIPs have also seen strong results, with annualised returns well over 25% in several cases.

Thematic funds catch up

Outside the small-cap universe, certain thematic funds have emerged as quiet winners. Funds focused on public sector undertakings (PSUs), infrastructure, and commodities have delivered strongly. One commodities fund, in particular, crossed the 34% CAGR mark over five years—aided by rising global prices and favourable government policy.

PSU-focused funds, once written off as dull and slow-moving, have surprised many with their performance. Backed by a revival in earnings and strong dividend payouts, these funds have delivered returns upwards of 28% annually for those who stayed invested.

The difference: timing and holding power

The rally didn’t happen overnight. Most of the top-performing funds began gaining ground after the COVID-led market crash in 2020. Investors who didn’t panic and stayed put through market corrections have seen the rewards of compounding.

Those who started SIPs in 2020—when market sentiment was still fragile—are now seeing XIRRs of 25% or more. It’s a lesson in long-term investing: time in the market matters more than timing it.

Don’t forget the risks

Not all that glitters is gold. Small-cap and thematic funds are known for their volatility. When things go wrong—be it due to global events, regulatory changes, or earnings shocks—these funds can slide fast. It’s crucial to have a 5–7 year horizon and to avoid putting all your money into just one theme.

FAQs

Q. Are these returns likely to continue?
Unlikely at the same pace. The last five years included a sharp post-COVID rebound. Future returns could moderate.

Q. Should I go for SIP or lumpsum?
If you're investing in volatile categories like small-caps or sectoral funds, SIPs help reduce the impact of market timing.

Q. Can I exit after 2–3 years if I get good returns?
You can—but keep in mind that most of these gains came from staying invested through cycles. Early exits might limit your upside.