As we are geared to enter the year 2025, the mutual fund industry is seen promising and shows no signs of slowing down. The growth of the overall asset size in the mutual fund industry has been quite impressive, particularly in the equity space. Over the past decade, retail investors have moved from traditional debt instruments to equity funds, with investment in equity funds rising remarkably.

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We spoke to a number of experts to explore which sectors are likely to perform well in the New Year. And what we discovered is that the mutual fund categories which offer good investment prospects include multi asset funds, sectoral funds and diversified funds with higher allocation to large caps.

Equity mutual funds rose as a proportion of total financial assets to a sharp 16.4% from a modest 5.3% over the period from March 2014 to September 2024. In general, this growth was primarily attributed to the increase in SIPs, which have seen higher participation by individual investors and therefore represent a heightened level of market confidence.

Despite this positive trend, the latest figures issued by the Association of Mutual Funds in India (AMFI) reveal that equity mutual funds’ inflows have dwindled by 14% at ₹35,943.49 crore for November compared with ₹41,886.69 crore for October. However, SIP inflows remained more or less steady at ₹25,319.66 crore, and it appears retail participation into long-term portfolios remains strong.

Experts give predictions for 2025 on the fields where investors may consider investing in order to earn maximum returns:

Expert insights on 2025 investment strategies

Shrinivas Khanolkar, Head – Products, Marketing & Corporate Communication at Mirae Asset Investment Managers, notes that while multi-asset allocation funds are often recommended in volatile markets, they could be a core portfolio component in 2025. “In a volatile market, multi-asset allocation funds are a wiser choice,” he explains.

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“Between 2000 – 2024, equities generated double-digit returns, and gold wasn’t far behind in INR terms. Multi-asset funds, which allocate money across equity, debt, money market instruments, and even Gold and Silver ETFs, can help investors maximize returns based on prevailing market conditions. With potential surprises or bouts of volatility in 2025, making multi-asset funds a part of the core portfolio could be a wiser choice.”

Feroze Azeez, Deputy CEO, Anand Rathi Wealth Limited, offers a positive outlook for FY 25, pointing to a fairly valued market with no significant froth.

“For FY 25, the market outlook is positive and we believe that the market is fairly valued with no major froth. Investors should pick funds across diversified categories of mutual funds while keeping 55% in large-cap and the rest in mid and small-cap categories.”

He highlights specific funds for consideration, such as DSP Equity Opp Fund, Kotak Multicap Fund, HDFC Small Cap Fund, and SBI Contra Fund. He also emphasizes growth in certain sectors, especially Consumer Durables & FMEG and Automobiles, with expected sales growth driven by strong demand during festivals and a strategic product mix to offset cost pressures. “In the coming quarter, Consumer Durables & FMEG and Automobiles are expected to perform well,” he adds.

Rishabh Goel, Managing Director, Tailwind Financial Services, advocates for diversified equity funds with a higher allocation to large-cap stocks, citing stability amidst broader market concerns.

“We recommend focusing on diversified equity funds with a higher allocation to large-cap stocks. This approach balances stability and growth, especially as valuations in the broader market remain elevated amidst growth concerns following Q2 results.”

He also recommends considering multi-asset funds, which can provide a hedge against volatility and uncertainty. “These funds can offer a strategic hedge against volatility and uncertainty, particularly given the current geopolitical landscape.”

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Vivek Sharma, Investment Head at Estee Advisors, reflects on the exceptional performance of the mutual fund industry in 2024, with total equity mutual fund inflows exceeding ₹3.5 lakh crore and a nearly 50% increase in AUM.

“The mutual fund industry has had an exceptional run in 2024, with total inflows into equity mutual funds crossing ₹3.5 lakh crore and AUM increasing by nearly 50%, driven by a combination of robust inflows and capital appreciation.”

Sectoral funds

“Sectoral and thematic funds led the charge, with 45 new fund offers entering the market and gaining traction among investors. Despite market turbulence in the last couple of months, retail participation was excellent, with SIP contributions exceeding ₹25,000 crore in November,” Sharma added.

Sharma points to the possibility of increased inflows into hybrid funds as investors seek balanced exposure in the face of ongoing market challenges. “If market volatility persists, hybrid funds can see increased inflows. These funds provide a balanced exposure across assets, making them a preferred choice for navigating tough waters.”

Towards the future: The path to 2025

The mutual fund industry in India slowly evolves towards a point where investors become progressively sophisticated in their choices. A reasonably balanced view is, however, envisaged about the overall markets, including active voting for the long haul through 2025. The need for diversification and focused allocation cannot be ruled out.

Sectoral funds, large-cap stocks, and multi-asset funds will have to be cautiously approached for the wheeling world of 2025 ahead. The choice will be on the investor to arm oneself with all relevant information if the right decisions are to make for great success in the longer term.

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.