Mutual funds are one of the most favoured investment options for Indian investors to create wealth. They also offer the ability to tap into equity, debt or hybrid portfolios without having to select specific stocks or bonds. But not all of funds fare equally every month. In September 2025, some funds scored big gains, others fell short. Let’s take a look at what’s hot and what’s not in mutual funds this January.
What’s Behind Fund Performance at the End of September 2025?
Before we get to the winners and laggards, here are some issues influencing mutual fund performance:
1. Equity Market News – Infrastructure, technology and auto sector attracted attention with funds featuring momentum in these stocks.
2. Bond Yields & RBI Policy – Debt and hybrid funds responded to interest rates and liquidity action.
3. Fund Manager Strategy – Stock picking and asset allocation were major players.
4. Risk Appetite – Mid and small cap funds found favor among investors who were upbeat on growth scripts.
5. Expenses & Fund Size – Cheaper, more nimble funds often had an edge.
What’s Hot: Top Performing Mutual Funds in September 2025
1. Mid-Cap and Small-Cap Funds
Mid & Small caps as clearly the winners this month.
- Axis Midcap Fund Axis Midcap Fund performed well but it too has strong weight to quality companies, hence generating superior returns.
- PGIM India Midcap Fund Maintained its upward foray along with higher three-year average returns.
- Invesco India Midcap Fund remained consistent across quarters and derived its gains from stock picking.
- Bandhan Small Cap Fund continued to be a standout, delivering high compound annual growth over the last three years.
- Motilal Oswal Midcap Fund also featured in the list of best performers.
These were supported by robust earnings in middle- and small companies and higher investor participation in these segments.
2. Flexi Cap and Multi Cap Funds
Flexi cap funds, which can invest across large, mid and small caps, performed well.
- HDFC Flexi Cap Fund gained traction as large cap stability mixed with mid cap growth.
- Parag Parikh Flexi Cap Fund did well with its diversified approach and balanced portfolio.
3. Sectoral and Thematic Funds
Sectoral funds with focus on infrastructure and manufacturing themes were in demand.
- ICICI Prudential Infrastructure Fund benefited from government spending and private investment in infrastructure.
These funds gave higher returns but carried greater risk due to concentrated exposure.
4. Debt and Short Duration Funds
Not all of the gains were from stocks. Amid the search for safety, consistent performance continued to be seen in short duration debt funds.
- HDFC Short Term Debt Fund
- ICICI Prudential Short Term Fund
- Axis Short Term Fund
These funds handled interest rate moves better than longer-maturity counterparts.
What’s Not: The Losers of September 2025
1. Large Cap Funds
Large caps provide stability but that category underperformed mid and small caps this month. Some of the funds in this category posted weaker short-term returns and underperformed their benchmarks.
2. High-Risk Sectoral Bets
Funds that had concentrated too closely on single sectors, such as metals or energy, faced volatility. When those sectors corrected, the funds were a disaster.
3. Long Duration Debt Funds
Funds that invest in long-term government securities and lower-rated corporate bonds came under pressure as yields crept up.
4. Funds with High Expense Ratios
Funds with a higher charge and less flexibility underperformed partners with leaner structures.
How to Choose Funds Wisely
- Examine consistent returns, not just performance for one month.
- Verify the track record of the fund manager and investment strategy.
- Choose the fund that best matches your investment horizon and your tolerance for risk.
- Keep an eye out for expense ratios – high fees can eat into returns.
- Make sure to get well diversified across Equity, Debt and Hybrid funds.
FAQs:
Q1. Should I make changes to my portfolio based on what happened in September?
A: No, one month’s results should not drive decisions. Examine long-term trends and consistency before changing anything.
Q2. Are small cap and mid cap funds good to invest now?
A: They can deliver higher returns but carry greater risk as well. For investors with at least a 5 year horizon.
Q3. Which group is less safe in the market today?
A: For stability you can opt for short term debt funds and balanced hybrid funds over pure equity funds.
Q4. How frequently should I revisit my funds?
Q: Once a quarter? A half year for sure. Don’t respond to jitters, mistakes or panics in the short run.
Q5. Do expense ratios really matter?
A: Absolutely, even a 1% difference in expenses can make a huge difference over time on total returns.
Conclusion
September 2025 underscored well mid & small cap fund space as also Theme bets in infrastructure. Flexi cap funds continued their strong performance, while stability was provided by debt funds which attracted on the side of caution. On the other hand, large cap funds, long duration debt funds and high cost schemes underperformed.
The lesson is don’t chase short-term winners but rather have a balanced portfolio that fits your goals and risk profile. Mutual fund investing tends to work best with patience and discipline.
