Prime Funds performance in 2025

It’s almost time to break out the Happy New Years! The past year has been a tumultuous one on all fronts, whether geopolitical, markets, bond yields, or exchange rates. We have been careful with the changes we made in Prime Funds, given these developing scenarios. So now let’s move to our annual exercise of looking at how our Prime Funds performed for the year. 

What we did in 2025

With Prime Funds overall, our changes have been done to provide more options in categories that were gearing up for a potential higher return scenario, such as corporate bonds, or which were becoming more attractive from a portfolio building perspective, such as hybrid funds.

Apart from this, by and large, we have kept changes to a minimum. For one, the funds in the Prime Funds list all continued to be reasonable outperformers. Where performance did lag, it was primarily given the nature of the market movement in the past year and the fund’s portfolio and strategy. We are always careful with assessing performance in these scenarios. For another, we were wary about adding more funds in such market conditions; on the debt front, there are very few consistent performers that we find outside of Prime Funds.

Equity funds

Equity markets in 2025 put up a diverse behaviour, with some pockets rallying while others dropped. As of December 24, the Nifty 50 has clocked a 10.2% return in the year to date. The Nifty Midcap 150 rose 5%. Meanwhile, the Nifty Smallcap 250 is still down 6.4%. 

Apart from this marketcap divergence, the market rally itself has become narrower. Consider the broad-market Nifty 500 index, which delivered a 6.3% return YTD. From this index, a solid 63% of the stocks actually delivered less than 6%. Even in the Nifty 100, more than half the stocks in the index have individually delivered less than the index return. 

Further, breaking the performance down into quarters shows that a sharp sell-off in the first quarter of the year triggered by the US tariffs was followed by an uptick. Markets then remained rangebound. The final quarter again spiked. In this final quarter especially, the proportion of stocks that return more than the index is very low.

This is an indicator that the index-level return has been driven by a smaller set of stocks, and broadly, more stocks have corrected than the index returns let you believe. For funds, those which were more diversified in their holdings, had closer pegs to their benchmarks, or were mid-and-smallcap oriented have all seen returns drop or lag their benchmarks. 

Equity – moderate

For this Prime Funds set, we draw from multiple categories – largecap, flexicap, value/contra, etc. We made absolutely no change at all to this set through the year, and have continued to recommend the same set of funds. The performance of this Prime Funds set is below:

Prime Funds – Equity moderate  delivered strong outperformance versus category peers, returning 9.51% against a category average of just 5.49%. This 4-percentage point margin demonstrates effective fund selection in challenging market conditions. For context, the largecap fund category itself clocked a YTD return of only 7.67%.

The modest lag versus the Nifty 100 TRI (which returned 9.72%) reflects the narrow nature of this year’s rally, where a concentrated set of stocks drove index performance. For context, the largecap fund category itself clocked a YTD return of only 7.67% – lower than the large-cap index itself suggesting that the rally was indeed quite narrow – not allowing diversified funds to perform.

Since Prime Funds Moderate category draw from categories with some  mid-and-small cap exposures as well, they experienced differentiated performance:

• Invesco India Contra and Kotak Contra have a higher share of mid-and-smallcaps of around 20% or higher. This exposure caused them to fall more in the first quarter of the year compared to the Nifty 100. For the quarter, the underperformance of about 5 percentage points. This early slip brought down their average return for the year. To put this in perspective, the Nifty Midcap and Smallcap indices fell 9-15% in the March quarter against the 1.6% of the Nifty 100. Both funds have since recovered in the remainder of the year.
• The narrowness of the rally towards the end of the year, when the Nifty 100 climbed about 5.2%, also saw stalwart funds such as Parag Parikh Flexicap also marginally lag the Nifty 100 TRI. 
• ICICI Pru Focused Equity was a marked outperformer, with the concentrated exposures working in its favour. ICICI Pru Value also scored very well.

Equity – Aggressive

This Prime Funds set contains all funds with higher mid-and-smallcap allocations or more aggressive strategies. The categories we consider here range from focused to midcaps, multicap, smallcap, thematic and so on. In this set, we had scaled back options in 2023 owing to performance disappointments in some funds and a rallying market in 2024 that made it hard to add funds that would score on downside containment or identify funds that would be steady outperformers.

In 2025, given the moderation in the rally in the midcap space and the correction in smallcaps, we sought to add more options here again. Here is the performance of the Prime Funds – Aggressive set. We have included the High Risk Turnaround funds in this calculation.

Prime Funds – Aggressive delivered 3.30%, outperforming the category average of 1.81% despite challenging conditions in the mid and smallcap segments. Given the composition of this set—with a majority in mid and smallcap funds—the performance must be viewed in context of these segments rather than largecap-heavy indices. The Nifty Smallcap 250 declined 7.11% for the year, while the Nifty Midcap 150 returned 5.39%.

Breaking down the performance:

• Specific underperformers included Motilal Oswal Midcap, which has taken a stiff tumble in recent weeks. Mahindra Manulife Midcap and Baroda BNP Multicap struggled earlier in the year but have since improved against their benchmarks.
• The three smallcap funds in Prime Funds naturally reflect the correction in this space, which pulls down the overall average. However, these funds have still fared better than the Nifty Smallcap 250. Removing these funds (given their specialized mandate) brings the set’s average to 5%.
• In the High-Risk Turnaround set, we had removed JM Value in our April review owing to its sharp fall. Another fund—Invesco India Focused—that we added has also dipped sharply in the past month thanks to corrections in a few stocks.

The majority of funds in this Aggressive set have performed better than their respective benchmarks, and the set as a whole has comfortably beaten category averages.

Given the very recent decline in performance in some of these funds and the current market scenario, we are inclined to wait it out for a couple of quarters before making any changes here. We are also in the process of our December quarter review and we’ll let you know if any action is required on these funds.

Equity – strategic & thematic

We have been the most active in this set of Prime Funds. Our continued call on banking has paid off well, with the sector gaining pace towards the second half of the year. Similarly, we retained a call on IT as an underdog sector – though we reduced the number of funds we recommended – and this sector too has recovered. We recently issued calls on commodities, PSU theme, and transportation which we see playing out over the next year.

We pulled out consumption as a theme, though, given that funds on this theme are increasingly struggling to identify performing stocks. Our call on pharma is also currently underperforming, but we do believe that the theme continues to hold potential. 

Hybrid funds – Moderate Risk

In hybrid funds, we look at the equity allocations, returns, volatility and downside containment. Hybrid Equity – Moderate Risk funds are suitable for longer-term holdings and a route to get more equity in a portfolio without as much risk. In this Prime Funds set, we added only one multi-asset fund, to provide more options for portfolios. The performance of this Prime Funds set is as follows:

In flat to falling markets, hybrid funds usually put up better performance compared to pure equity funds, as you may observe from the returns. In the Prime Funds set, two long-time funds ICICI Pru Equity & Debt and ICICI Pru Multi Asset have been especial excellent performers. The newest addition Nippon India Multi Asset has also clocked a strong showing. We’ll continue to look for funds that deftly manage their equity and debt portions to drive returns, as well as ability to contain downsides.

In the Hybrid Equity – Low Risk set, we have made no change at all since our June 2023 review. All funds in this set continue to be steady performers.

Debt funds

2025 was the year when the much-anticipated repo rate cuts finally materialized. But markets had already been factoring in rate cuts well before the actual cuts were made, with the result that bond yields did not fall as much in the year despite the rate cuts. By and large, debt markets and debt category performance played out as we had explained in our 2025 debt outlook. 

With the debt recommendations in Prime Funds already balanced across different opportunities, we made very few changes to our recommendations. We focused more on accrual opportunities rather than duration gains, which had largely been done with early in the year.

Debt – Very short term

For this Prime Funds basket, we look at several categories – low duration, money market, ultra short, and floating rate. We made just one change here to replace Kotak Money Market with Nippon India Ultra Short Duration. We made this change primarily to add funds with better yields given the very short-term purpose of these funds. Our performance in this Prime Funds set continues to remain healthy.

Debt – Short term

For this Prime Funds basket, we look at categories such as floater and banking & PSU, apart from short duration funds. We removed just one fund here and added no new funds. The performance of this Prime Funds basket is as follows:

The funds we have picked in these categories have all been well above their peers. Nippon India Floater and ICICI Pru Short Term have done especially well, clocking returns above 8%. The remaining funds stand at about 7.8%. The average in the table above, in fact, is lower only due to SBI Floater which we removed in the June 2025 quarter review owing to underperformance. 

Debt – Medium term & debt – Long-term

In these Prime Funds sets, we pull from different categories where the average portfolio maturity is longer than 2-3 years or the strategy requires a longer holding period. Here, we made changes to cut back on duration play and add more accrual options. We also continued to house gilt funds from a long-term portfolio perspective along with corporate bond and credit risk funds. The performance of this Prime Funds set is below:

• By and large, funds we recommended have done well compared to their peers. ICICI Pru Corporate Bond and Nippon Corporate Bond performed very well, beating the corporate bond category by a healthy margin. 
• The new accrual addition we made – ICICI Pru Medium Term – has also done well, clocking a 9.3% return. The accrual strategy of this fund is boosted by its measured credit calls, which works well to improve overall returns in a period of flat to falling interest rates.
• The gilt and constant maturity funds such as SBI Gilt and SBI Constant Maturity, of course, gave up much of their duration gains. But from a debt allocation perspective, they still deliver well in long-term portfolios. We are not worried by the lower returns in these funds.

Overall, all our Prime Funds recommendations have by and large beaten their respective benchmarks/categories. In equity funds, of course, there are a few where we will be watching performance given the market conditions. Looking ahead, we’ll maintain our disciplined approach to fund selection. Our quarterly review process allows us to make timely identification of both opportunities and corrections. Here’s to a prosperous 2026!