Best Mutual Funds to Consider in 2025

The Indian stock market has shown a mixed bag of results as we navigate through 2025. The Nifty 50 index, India’s main benchmark, has delivered a modest 5.7% return so far this year. However, mid-cap and small-cap stocks, tracked by the Nifty Midcap 150 and Nifty Smallcap 250 indices, have posted more subdued returns of 2.6% and -2.6% respectively. While recent performance might seem less exciting, it’s good to remember that over the long run, small and mid-cap stocks have historically outperformed their large-cap counterparts.

The current market is experiencing some volatility. This is largely due to global factors like trade policies from the US (including those related to President Donald Trump’s tariffs) and ongoing geopolitical tensions. Plus, there are growing concerns about the high valuations of many stocks and the overall market.

Given these various factors, it’s clear that not all types of equity mutual funds are equally suitable right now. Making a thoughtful choice is essential. In this guide, we’ll delve into the Best Mutual Funds to Consider in 2025, focusing on categories that appear well-positioned for the current market environment.

Table of Contents

Understanding Today’s Market

To make good investment choices, it’s helpful to understand what’s happening in the market:

Global Influences: Events outside India, such as trade policies or conflicts, can make markets worldwide, including India, less predictable.
Stock Prices: Some stocks and the market as a whole might seem expensive. This means their prices have gone up a lot, and there might not be much room for further quick growth.
Mutual Fund Returns: These market conditions directly affect how much money mutual funds make. This is why picking the right type of fund is more important than usual.

Given these challenges, choosing specific types of mutual funds can help investors manage risks while still aiming for good returns.

Top Mutual Fund Categories for 2025

Here’s a breakdown of the mutual fund categories that are worth considering right now:

1. Large Cap Funds

What they are: Large cap funds primarily invest in the stocks of India’s 100 biggest companies based on their market value. These are typically well-known, established companies that are leaders in their industries. They usually have strong financial positions and are managed by experienced teams.

Why they are suitable now: When the market feels expensive or uncertain, investing in these large, stable companies can be a safer choice. While the overall market might still grow, large-cap companies offer more protection against big drops. They provide a way to invest in top companies with a lower risk compared to smaller companies.

Investment Time: It’s best to invest in large cap funds for at least 3 years to see good results.

Examples of Large Cap Funds:

Aditya Birla Sun Life Frontline Equity Fund
SBI BlueChip Fund
ICICI Prudential Bluechip Fund
HDFC Large Cap Fund
DSP Top 100 Equity Fund

2. Value Funds

What they are: Value funds look for companies whose stocks seem “undervalued.” This means their current market price is lower than what the fund managers believe their true value is, even though the company has strong fundamentals and potential for future growth. These funds can invest in companies of any size or industry, as long as they fit the “value” criteria. Fund managers often use financial ratios (like PE ratio, PB ratio, ROCE, ROE, ROA) to find these hidden gems.

Why they are suitable now: Value funds are often seen as a good choice for managing risk and reward. They tend to fall less than mid-cap or small-cap funds during a market downturn and can perform well when the market recovers. In uncertain times, these funds are a good option for long-term investment.

Investment Time: Plan to invest in value funds for at least 5 years.

Examples of Value Funds:

ICICI Prudential Value Discovery Fund
Templeton India Value Fund
HDFC Value Fund
Quantum Value Fund

Also Read :- What Are Liquid Funds? A Guide to Their Benefits and Functionality

3. Flexi Cap Funds

What they are: Flexi cap funds are very flexible. Their fund managers can invest in large-cap, mid-cap, and small-cap companies without strict limits. They can change their investments based on how different parts of the market are performing. At least 65% of their money must be invested in stocks.

Why they are suitable now: This flexibility helps these funds adapt to changing market conditions and potentially earn better returns. In today’s market, there could be growth opportunities in companies of all sizes. Flexi cap funds offer a good way to diversify your investments. If the market goes down, they can shift more money to stable large-cap stocks. If mid-caps and small-caps start doing very well, they can increase their investment in those to capture higher gains.

Investment Time: Consider flexi cap funds for at least a 5-year period.

Examples of Flexi Cap Funds:

Parag Parikh Flexi Cap Fund
JM Flexi Cap Fund
ICICI Prudential Flexi Cap Fund
HDFC Flexi Cap Fund
Invesco Flexi Cap Fund

4. Aggressive Hybrid Funds

What they are: These are a type of “hybrid” fund, meaning they invest in a mix of stocks and debt (like bonds). Most of their money (65% to 85%) goes into stocks, and the rest (20% to 35%) into debt instruments. Their goal is to grow your money over time from stocks and also provide some regular income from debt investments.

Why they are suitable now: In unpredictable markets, aggressive hybrid funds offer some stability because of their debt portion. When interest rates are falling, the debt part of these funds can do well. This is because when interest rates go down, bond prices (and thus the value of debt funds) tend to go up.

Investment Time: These funds are suitable if you’re comfortable with moderate-to-high risk and plan to invest for 3-5 years.

Examples of Aggressive Hybrid Funds:

ICICI Prudential Equity & Debt Fund
UTI Aggressive Hybrid Fund
HDFC Hybrid Equity Fund
Tata Hybrid Equity Fund
SBI Equity Hybrid Fund

5. Multi Asset Allocation Funds

What they are: These funds are also hybrid but invest in at least three different types of assets, with at least 10% in each. Common assets include stocks, debt, and gold. Some might also include silver, derivatives, or international stocks. The fund manager can dynamically change how much they invest in each asset based on market outlook.

Why they are suitable now: Different asset classes (like stocks, debt, and gold) usually don’t move in the same direction at the same time. This means multi-asset allocation funds can help protect your investment during market downturns. Their balanced approach is very useful in today’s uncertain and volatile times, allowing you to potentially get good returns by investing in various assets simultaneously.

Investment Time: These funds are for those seeking long-term growth, with a moderately high-risk tolerance, and an investment horizon of 3-5 years.

Examples of Multi Asset Allocation Funds:

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

Also Read :- Multi-Asset Allocation Funds: What They Are, Benefits, and Why You Should Consider Them

How These Fund Categories Have Performed

The table below shows how these fund categories and some market benchmarks have performed.

Table: Performance of Selected Mutual Fund Categories vs. Benchmarks

Scheme Name / Benchmark Index	Absolute Returns (%) (1-Year)	CAGR (%) (3-Years)	CAGR (%) (5-Years)	Risk (SD Annualised)	Sharpe Ratio	Sortino Ratio
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
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. Data is as of the provided date and reflects past performance, which is not an indicator of future results.

This table shows that categories like Value Funds have delivered strong returns over various periods. Multi-Asset Allocation Funds have also shown good returns with lower risk (indicated by lower Standard Deviation and higher Sharpe/Sortino Ratios), suggesting they offer better returns for the level of risk taken.

Also Read :- Mid-Cap Funds: The Growth Engine You Might Be Overlooking

Key Takeaways

These selected mutual fund categories are well-suited for the current market conditions in 2025.

However, it’s very important to:

Choose specific schemes carefully: Don’t just pick a category; research individual funds within that category. Look at their past performance, the fund manager’s experience, and fees.
Invest regularly (SIP): Instead of putting a large sum of money in at once, consider investing a fixed amount regularly through a Systematic Investment Plan (SIP). This helps average out your purchase cost over time and is a sensible strategy for long-term goals.

Disclaimer: Investing in mutual funds involves market risks. Be sure to read all scheme-related documents carefully before making any investment decisions. Remember, past performance doesn’t guarantee future returns. The specific funds and securities mentioned in this article are purely for illustration and shouldn’t be seen as recommendations. This content is for informational purposes only and isn’t a substitute for professional financial advice. Always consult your investment advisor for personalized guidance before investing.