54% of equity mutual funds outperform benchmarks in February 2025: Report

In February 2025, 54% of equity mutual funds managed to outperform their respective benchmarks, according to a report by PL Wealth Management. This comes even as the assets under management (AUM) for equity mutual funds, excluding sectoral and thematic funds, experienced a decline of 6.97% from Rs 24.85 lakh crore in January to Rs 23.12 lakh crore in February.

Small-cap funds emerged as the leaders, with 79.31% of schemes outperforming their benchmarks during the month. This was followed by focused funds and large & mid-cap funds, which exceeded their benchmarks by 67.86% and 65.63% respectively. Large cap funds, conversely, lagged behind, with only 21.88% outperforming.

The performance of equity mutual funds in February reflects a continuation of trends observed over the past year. Out of 282 open-ended equity diversified funds, approximately 67.02% managed to outperform their benchmarks over the year ending in February 2025. Notably, in the previous month, 70.29% of schemes were able to beat their benchmarks.

This suggests a fluctuation in fund performance in response to market conditions. During the same period, the Nifty 50 TRI, Nifty Midcap 150 TRI, and Nifty Small Cap 250 TRI recorded monthly returns of -3.49%, -6.58%, and -8.46% respectively, indicating a challenging environment for index tracking.

Despite the monthly underperformance of major indices, long-term investment strategies in equity mutual funds have shown resilience. "Investors are advised to stick to their SIP investments and keep a long-term focus. SIPs over the past 3-years have yielded a return in excess of ~12% p.a. on an average for the top quartile equity funds," the report stated. This long-term perspective is crucial as the market navigates through volatility, providing a stable return outlook for diligent investors.

Within the competitive landscape, equity mutual funds' ability to outperform benchmarks varies across categories. The robust performance of small cap and focused funds highlights their strategic positioning amid market challenges. Small cap funds, in particular, often benefit from their focus on high-growth companies, which can perform well even when broader indices face downturns. In contrast, large cap funds may struggle due to their exposure to more established companies that are closely linked to market indices. The variability in performance underscores the importance of fund selection based on market conditions and individual investment goals.

As investors continue to navigate the complexities of the equity mutual funds market, the need for informed decision-making remains paramount. With many funds demonstrating the capability to exceed benchmarks, the importance of maintaining a diversified portfolio and focusing on long-term gains becomes even more evident. The current market dynamics emphasise the role of strategic fund management and the potential for growth amidst fluctuating market conditions. This underlines the enduring value of equity mutual funds as a component of investment portfolios, despite short-term market pressures.