The Indian mutual funds industry has seen remarkable growth in the last few years. Retail participation has increased, digital investing has become mainstream, and more citizens are now exploring long-term financial planning. Within this fast-expanding environment, several mutual funds have delivered exceptional returns. Some mutual funds have even come close to doubling investor wealth within only two years, which naturally attracts wide attention.
However, while the performance numbers look impressive, they also come with an important responsibility. Investors must understand that past returns only show the history of a fund and not its future direction. Market conditions change, sector leadership rotates and mutual funds manager revise their strategies based on new opportunities and risks. For this reason, investors need to study the true quality of a fund beyond only return figures.
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This article explains which mutual funds performed strongly over the last two years, what factors contributed to their growth, and which parameters investors should evaluate before making any investment decision.
Mutual Funds That Delivered Exceptional Two-Year Performance
HDFC Defence Fund
Among many other mutual funds, this fund has been one of the most talked-about schemes in recent times. It delivered more than 60 % growth in the last two years. The rise of the Indian defence sector, supported by the government’s focus on domestic manufacturing, defence exports and technological upgrades, created a favourable environment for companies in this segment. The fund benefited from this strong theme and generated noteworthy returns for its investors.
Bandhan Small Cap Fund
This fund captured the strong rally in the small company category. It delivered more than 43 % returns in two years. Many small companies recorded sharp earnings improvement due to increased consumer demand, better margins and improved balance sheet strength. Retail investor participation in small company stocks also contributed to the fund’s growth.
SBI Public Sector Unit Fund
This scheme generated almost 40 % growth in the same period. The rise in public sector enterprise valuations, especially in capital goods, energy, railways and banking, played a major role. The market rated many companies in this category due to improved earnings visibility, reforms and efficient management decisions.
Invesco Public Sector Unit India Equity Fund
This fund recorded more than 41 % returns driven by the overall strength in public sector enterprises. Higher government spending, strong project execution and favourable global conditions helped many companies deliver better financial results. As a result, the fund benefited from the widespread attention public sector companies received.
LIC Mutual Infrastructure Fund
This scheme offered more than 40 % gains in two years. India is currently witnessing massive investment in transportation, logistics, housing, energy and urban development. Companies that play a role in these activities gained strong momentum, which helped the fund achieve impressive growth.
Past Returns Do Not Guarantee Future Performance
While these numbers appear promising, investors should exercise caution when making decisions based solely on past performance. Financial markets move in cycles. A theme that performs exceptionally well today may become slow tomorrow if conditions change.
For example
Defence mutual funds may benefit during periods of high government spending, but may slow down if the focus shifts.
A public sector unit fund may surge when there is favourable sentiment, but can weaken during uncertain policy situations.
A small company fund may deliver extraordinary returns during growth phases, but may decline sharply during volatility.
Therefore, investors must evaluate deeper factors to understand the true potential and risk level of any mutual fund.
Important Factors to Check Before Selecting Any Mutual Fund
Alpha
Alpha shows how much a fund performed better than its benchmark index. A higher alpha reflects skilled fund management and strong stock selection. It indicates that the fund manager can identify opportunities that are not obvious to the broader market.
Beta
Beta measures the sensitivity of the fund in relation to the market. A high beta means the fund experiences sharper ups and downs. Investors with low risk tolerance may prefer a lower beta, while aggressive investors can choose funds with a higher beta if they understand the associated risk.
Extended Deviation
This indicates how stable or unstable a fund’s returns are over time. A lower deviation means the fund’s performance is more predictable and steadier. A high deviation reflects inconsistent returns and higher volatility.
Sharpe Ratio
Sharpe ratio explains how much return a fund delivers compared to the risk taken. A higher sharpe ratio indicates better reward for each unit of risk. This is one of the most useful measures for comparing similar funds.
Expense Ratio
This shows the cost of managing the fund. A lower expense ratio helps investors keep a larger share of the profits. Expense ratio becomes even more important for long-term investors since costs compound over time.
Star Rating
Fund research agencies assign star ratings based on risk-adjusted performance. While this should not be the only deciding factor, it helps investors understand how a fund performed relative to its peers.
Role of Government-Supported Themes
The strong performance of these funds reflects not only market momentum but also the influence of national policy decisions. Defence, public sector enterprise, small companies and infrastructure are areas that received major government encouragement in the current environment. When government spending increases or when a sector becomes strategically important, companies in that area usually benefit from higher orders, better earnings and improved stability.
Themes are powerful but temporary. They may remain strong for two to five years or more, depending on the economic cycle. This is why investors should choose theme-based funds only after evaluating whether the theme still has room for growth and whether it matches their risk profile.
SIP, Mutual Funds and ETFs. A Long-Term Strategy Still Wins
Even though some funds delivered exceptional two-year returns, the safest strategy remains systematic investment planning. SIP helps investors average the cost of investment and reduce the emotional impact of market swings.
Exchange-traded funds also offer a low-cost alternative for investors who want steady exposure to large themes or indices. Many investors combine SIP in mutual funds and lump sum investing in exchange-traded funds to build balanced long-term portfolios.
Conclusion
These mutual funds have delivered outstanding performance over the last two years, supported by powerful themes and favourable government policies. However, investors should always remember that past performance is not a guarantee of future success. A wise investment decision requires studying alpha, beta, deviation, Sharpe ratio, expense ratio, star rating and the economic trends that support each sector.
For more detailed information and data related to mutual funds performance, you can visit the official AMFI site using the link given here.
https://www.amfiindia.com/research-information/mutual-fund-corner
With careful planning, disciplined investing and proper understanding of risks, investors can build a strong and rewarding portfolio for the long term.
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