With a growing number of investors turning to mutual funds for long-term wealth creation, understanding the historical performance of these funds becomes critical. In the Indian mutual fund space, Direct Equity Mutual Funds offer a no-commission route to investing in equities — and the long-term data shows both consistency and significant outperformance among a select few.
A Snapshot of the Mutual Fund Universe
As of now, there are 508 Direct Equity Mutual Funds in operation. Out of these, 208 funds have a track record spanning over 10 years. Over this decade-long period, the average return across these funds stands at an impressive 14.72% per annum.
However, averages don't tell the full story — some funds have significantly outperformed, while others have lagged behind. Here’s a breakdown of how these 208 funds have performed relative to the average:
Top Outperformers: More than 6% above average ( >20.72% )
- Number of funds: 1
- Top Performer: Nippon India Small Cap Fund - 21.87%
This elite category represents exceptional performers that significantly outpaced the average. A fund in this group not only delivered outsized returns but also demonstrated consistent compounding over a decade. Such performance, however, often comes with higher volatility and may be sector- or size-specific (like small-cap exposure).
Strong Performers: Between 4% and 6% above average (18.72%-20.72%)
- Number of funds: 6
- Top Performer: Quant ELSS Tax Saver Fund - 20.69%
- Notable Mention: Motilal Oswal Midcap Fund - 19.09%
These are high-performing funds that beat the average by a meaningful margin. They often capitalize on niche strategies or timely sectoral allocations and may include thematic or mid-cap oriented funds. Investors in this group benefited greatly from growth-focused strategies.
Moderate High Performers: Between 3% and 4% above average (17.72%-18.72%)
- Number of funds: 13
- Notable Mention: Invesco India Midcap Fund - 18.6%
Funds in this range have consistently delivered strong long-term performance. While not outliers, they indicate solid fund management and are typically balanced between risk and reward. They’re often suitable for moderately aggressive investors.
Solid Performers: Between 2% and 3% above average (16.72%-17.72%)
- Number of funds: 20
- Top Performer: Franklin Build India Fund - 17.71%
- Notable Mention: Invesco India Contra Fund - 17.06%
These funds have delivered respectable outperformance over the long term. They often represent diversified equity strategies with some sectoral bias or a contrarian tilt. Investors in this band have enjoyed good returns with relatively stable performance.
Slight Outperformance: Between 1% and 2% above average(15.72%-16.72%)
- Number of funds: 31
- Top Performer: SBI Banking & Financial Services Fund - 16.71%
- Notable Mention:
- DSP Equity Opportunities Fund - 16.36%
- HDFC Flexi Cap Fund - 15.98%
These funds slightly outperformed the market average. They represent consistent, well-managed options and are ideal for investors looking for steady growth with controlled risk. Many popular large- and flexi-cap funds fall into this category.
Close to Average: Between 0% and 1% above average (14.72%-15.72%)
- Number of funds: 39
- Top Performer: ICICI Prudential Value Discovery Fund - 15.71%
- Notable Mention:
- Templeton India Value Fund - 15.29%
- ICICI Prudential Focused Equity Fund - 15.6%
These funds performed close to the average but still provided a slight edge. They can be considered consistent performers and may appeal to conservative investors who prefer lower risk over chasing higher returns.
Slight Underperformance: Between 0% and 1% below average (13.72%-14.72%)
- Number of funds: 29
- Top Performer: ICICI Prudential Bluechip Fund - 14.71%
- Notable Mention:
- HDFC ELSS Tax Saver - 13.91%
- Nippon India Banking & Financial Services Fund - 14.14%
These funds trailed the average slightly but still delivered decent long-term returns. Often, these are large-cap or defensive funds with lower downside volatility. They may be suitable for conservative investors or those nearing financial goals.
Moderate Underperformance:
- 1% to 2% below average (12.72%-13.72%) - 34 funds
- 2% to 3% below average (11.72%-12.72%) - 17 funds
- Notable Mention: DSP Top 100 Equity Fund - 12.38%
Funds in this category have noticeably underperformed the 10-year average, potentially causing investors to miss out on stronger compounding opportunities. Their lackluster performance may stem from structural or sector-specific issues, making it important for investors to critically reassess their continued investment in these schemes.
Significant Underperformance:
- 3% to 4% below average (10.72%-11.72%) - 9 funds
- 4% to 6% below average (8.72%-10.72%) - 5 funds
- More than 6% below average (‹8.72%) - 4 funds
This segment represents the lowest-performing funds, with returns well below benchmarks despite equity-level risk. Persistent issues such as poor strategy, manager turnover, or weak stock selection likely contributed to their underperformance. These funds raise serious red flags for long-term investors, and unless a clear turnaround is evident, exit or reallocation is generally recommended.
Key Takeaways
- Outperformance Is Rare but Rewarding: Only 1 fund has delivered over 6% above the average, but it returned a phenomenal 21.87% CAGR.
- Most Funds Cluster Around the Average: A large portion of funds — nearly 100 — delivered returns within ±2% of the average, highlighting market consistency.
- Underperformance Still Exists: Around 69 funds returned more than 2% less than the average, a reminder of the importance of fund selection and review.
Conclusion
While past performance should never be the sole basis for investment decisions, this 10-year performance data of Direct Equity Mutual Funds highlights several key insights that long-term investors can use to their advantage.
First, the range of returns across the 208 funds is striking. While the average return stands at a healthy 14.72% per annum, there are a few standout performers that delivered more than 6% above the average, compounding at over 21% annually. Over a 10-year horizon, that difference is transformational. For example, ₹1 lakh invested at 14.72% grows to about ₹3.94 lakh, whereas the same amount at 21.87% grows to nearly ₹7.2 lakh — almost double the corpus. This is the power of compounding, magnified over a long-term period.
However, not all funds deliver equally. A significant number of funds underperformed the average, and nearly 70 funds lagged by more than 2% annually. This underperformance could result in a substantial opportunity cost over a decade, especially when adjusted for inflation and risk.
That's why choosing the right fund is crucial. Factors such as fund management quality, investment philosophy, risk profile, and consistency in performance should be evaluated. Merely relying on past returns is not enough — investors must also consider how and why a fund performs, and whether its strategy aligns with their financial goals and risk tolerance.
In essence, long-term investing benefits not just from patience, but from strategic decision-making. Regularly reviewing fund performance and being willing to strategically churn underperforming funds in favor of better opportunities can significantly improve outcomes. This active approach, when done with careful analysis and timing, ensures investors are better positioned to benefit from the full potential of compounding over time.