Large-cap mutual funds lag behind small-cap peers as returns dip near fixed-income levels
Five-year returns of active large-cap funds have fallen to below 7.5% annualised, barely outpacing bank deposits, while small-cap funds deliver over double that performance.
Large-cap mutual fund schemes have seen their five-year performance erode, with most active funds now delivering annualised returns below 7.5%, a level comparable to low-risk fixed-income products such as bank fixed deposits. Passive funds tracking the Nifty 50 and Nifty 100 indices have generated roughly a 6.5% compound annual growth rate. The sector has been under pressure for nearly two years due to sustained foreign portfolio investor selling, high valuations, weak earnings growth, and broader macro headwinds like rising US bond yields, higher crude prices and a weakening rupee.
This environment has widened the gap with small-cap funds, which have posted a 14.6% CAGR, and mid-cap funds at 13.3% CAGR. Consequently, active equity inflows have gravitated toward small- and mid-cap funds, now accounting for about half of total equity inflows, while large-cap funds recorded more than ₹1,000 crore of outflows in the last two months.
