Growth funds continue their streak

With equity markets facing continued turbulence, it's a good time to reassess the core equity fund categories and their relevance for investors. At Value Research, we group the core equity space under the "growth" category, which includes flexi-cap, large & mid-cap, value-oriented funds with the latest entrant being multi-cap funds. These sub-categories share common traits—broad diversification and a wide investment universe—making them well-suited for long-term wealth creation. These funds provide exposure to India's top 500 listed companies, with large caps comprising 67 per cent of the market, mid caps 21 per cent and the small caps having a 12 per cent market representation. In recent years, funds following the value style had an upper hand, while those leaning toward growth stocks lagged. That trend, however, seems to be shifting. Over the past year, while the BSE 500 has delivered a modest 4.34 per cent (as of April 28, 2025), only 13 per cent of stocks with a high value rating (seven or above) outperformed, compared to 47 per cent of high-growth stocks. A similar pattern was observed during the recent market correction. Highlights & trends Performance: Actively managed growth funds continue to outperform the broader market. In FY25, 77 per cent of active funds in the growth universe outperformed the BSE 500 TRI. Over a three-year horizon, the value category led the pack, generating an alpha of 4.59 per cent, while flexi-cap funds posted a more modest alpha of 1.35 per cent. Rising investor interest: Diversified categories have regained favour, following a prolonged dominance of "riskier" categories (mid-cap, small-cap, and sectoral/thematic funds) in terms of popularity levels. Their share of inflows rose from 34 per cent in Q1 FY25 to 49 per cent by Q4 FY25, nearly matching those of riskier segments. Notably, flexi-cap funds led the rebound, accounting for 42 per cent of all inflows in diversified funds, totalling over Rs 16,400 crore. Market cap allocation: Diversified funds have maintained a consistent large-cap bias, which helped some funds withstand the recent market downturn. Sectoral allocation: Since the September 2024 correction, growth-oriented categories have