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We recently received a question from a reader: "I've seen some mutual funds deliver 26 per cent SIP returns in the last five years. Can I expect similar returns if I start investing now? Where should I invest for similar returns?"
It's a fair question — and a familiar one. Every investor wants to grow their money faster.
The good news is that there are 36 funds (including four ETFs ) that have delivered 26 per cent and above annualised SIP returns in the last five years.
The bad news is that they are a small subset of the entire mutual fund universe. Unsurprisingly, most of them fall under small-cap , thematic or sector-specific categories.
While the returns are genuine, they are not repeatable benchmarks. They are outcomes of specific cycles, and investors who enter late or exit early may not see the same results.
So, should you bank on funds that performed well simply because they were in the right place, at the right time? We think not.
What fund returns should you expect
At Value Research, we believe in the power of rolling returns. Why? It's a more reliable way to understand what mutual funds typically deliver over different market phases.
So, we computed five-year rolling returns on a daily basis across multiple years for each mutual fund category to see their average performance, not just in bull markets but during bear phases as well - and here's what we found:
Category-wise SIP performance: What history tells us
| Category | Average five-year SIP return (%) | Suitable for |
|---|---|---|
| Large Cap | 12.20 | Ideal for those new to equities or uncomfortable with market volatility. Invest only if you can stay invested for at least five years. |
| Large & Mid Cap | 13.70 | Suited for the core of your equity portfolio. These funds have the flexibility to invest across sectors and market caps, making them a convenient, hands-free option. Recommended investment horizon: minimum five years. |
| Flexi Cap | 14.70 | Suited for the core of your equity portfolio. These funds have the flexibility to invest across sectors and market caps, making them a convenient, hands-free option. Recommended investment horizon: minimum five years. |
| Value Oriented | 15.50 | Suited for the core of your equity portfolio. These funds have the flexibility to invest across sectors and market caps, making them a convenient, hands-free option. Recommended investment horizon: minimum five years. |
| Mid Cap | 16.10 | Best used to supplement your core holdings. These funds can deliver higher returns but come with sharper ups and downs. Invest only a small portion of your money, and only if your horizon is seven years or more and you're comfortable with high volatility. |
| Small Cap | 17.60 | Best used to supplement your core holdings. These funds can deliver higher returns but come with sharper ups and downs. Invest only a small portion of your money, and only if your horizon is seven years or more and you're comfortable with high volatility. |
| Daily five-year SIP rolling returns with monthly SIPs taken for each category since its launch | ||
These returns represent long-term averages — not the highs of a bull run or the lows of a crash. They are a much more dependable foundation for financial planning.
Rather than anchoring your plan to a fund giving out 26 per cent annualised returns — which very few funds have achieved — it makes sense to work with these historical averages, based on the fund category and your risk appetite.
How to choose the right fund?
Begin with your objective. Whether it's retirement, a home or your child's education — each goal has its own timeline and return requirement.
Once the goal is clear, assign a realistic return expectation, generally, 12 to 13 per cent annualised returns for equity-oriented mutual funds. Then:
-
Choose categories based on risk appetite and time horizon (mentioned in the table above)
-
Set up SIPs (we prefer
monthly SIPs
)
- Rebalance annually or when your allocation skews significantly
For example, a long-term goal like retirement may be best served by a flexi-cap fund . If you're aiming for wealth creation over 15-20 years, adding mid- and small-cap funds in modest allocations can help enhance returns — but only if you're comfortable with higher volatility.
Should you avoid 26% funds altogether?
Not necessarily. Funds that delivered 26 per cent returns may still be high-quality options — but that should not be the only reason you choose them. Instead, evaluate:
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Whether the fund has delivered consistently during both bull and bear phases
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If the portfolio is diversified or concentrated in specific sectors
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The tenure and track record of the fund manager
- How much drawdown or volatility the fund has endured
If these boxes are checked and the fund fits into your broader risk and time profile, it may still deserve a place in your portfolio. Just don't expect it to replicate its past performance.
Final word
Build on discipline, not on outliers.
It's tempting to look at 26 per cent returns and imagine how quickly you could build wealth. But the smarter route is to build your plan around what is likely, not what is rare.
Struggling to choose the right fund for your goals? Let Value Research Fund Advisor guide you.
Also read: Don't be fooled by 'This fund has given 200 per cent returns' headlines
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