Mutual Funds: When India’s Equity Asset Managers Lost to Gold in 2025

Multi-asset funds with precious metal allocations crushed pure equity strategies as small-caps lost money and mid-caps barely registered gains

Fund houses love to tout their range. Walk into any distributor’s office and you’ll get the full buffet: small-cap for aggressive growth, large-cap for stability, flexi-cap for flexibility, value for the patient investor. There’s a fund for every risk appetite, every time horizon, every investment philosophy.

The unspoken assumption: you, the investor, need to pick the right dish at the right time. Choose small-caps when they’re hot, rotate to large-caps when volatility strikes, maybe sprinkle in some value funds when markets get frothy. It’s your job to be the chef.

2025 proved equity was not the winner.

The Index Doesn’t Lie

The Nifty 50 delivered 10.5% in 2025, a respectable if unspectacular performance. Yet the Nifty Smallcap 250 lost 6.01% for the year and the Nifty Midcap 150 gained just 5.37%. These are the benchmarks that define equity performance in India. The indices themselves underperformed or barely kept pace.

Now look at the mutual fund categories tracking these same segments. Small-cap funds lost 4.47% in 2025—actually better than their benchmark, but still a loss. Mid-cap funds returned 1.94%. Multi-cap funds managed 2.29%. These are actively managed funds charging 1.5% to 2% annually to beat the market. They didn’t even match the Nifty 50.

Meanwhile, multi-asset allocation funds delivered a whopping 16.24%!

While equity fund managers were busy constructing portfolios, running screens, meeting management teams, and churning stocks, a simple blend of equities, debt, gold and silver crushed them by 600 to 2,000 basis points depending on the category.

The DIY Disaster

Investors who tried to pick the winning category got burned. Small-caps, the growth engine everyone wanted exposure to in 2024, imploded. The Nifty Smallcap 250 posted negative returns of 6.25% over six months suggesting the pain accelerated as the year progressed. Those who thought they were being smart by choosing multi-cap funds for “balanced” equity exposure got 2.29%. The flexi-cap crowd, betting that fund managers would navigate markets better than they could, earned 2.99%.

The people who simply bought multi-asset allocation funds—the category that doesn’t ask you to make any tactical calls—made 16.24%. These funds handled the asset allocation themselves, keeping 60-75% in equities and spreading the rest across debt, gold and silver.

The Category Trap

Consider what happened to someone trying to be tactical. In early 2025, with small and mid-caps on a tear from previous years, the logical move seemed to be loading up on those categories. Mid-caps had delivered 21.57% annualized over three years. Small-caps showed 19.28%. The momentum was obvious.

Except the Nifty Smallcap 250 then lost 6.01% for 2025. The Nifty Midcap 150 gained just 5.37%—fine in isolation, but miserable compared to the Nifty 50’s 10.5%. Anyone who made the “smart” tactical call to overweight these categories based on past performance got demolished.

Large-caps were supposedly the defensive play. They are established companies, stable earnings, lower volatility. That narrative held up better—large-cap funds returned 7.25% for the year, slightly below the Nifty 50 but decent. But even that required perfect timing. Large-caps gained just 1.50% over the final six months of 2025. The defensive trade stopped working when you needed it most.

The Philosophy Game

Fund houses don’t just offer categories, they offer investment philosophies. Value funds for the disciples of Graham and Buffett. Contra funds for contrarians who want to bet against the crowd. Focused funds for investors who believe concentration beats diversification.

In 2025, every philosophy failed to beat a simple balanced approach that added some precious metals. Value funds returned 4.54%. Contra funds managed 5.28%. Focused funds delivered 4.77%. These aren’t bad returns in absolute terms, but they’re terrible returns for the concentration risk and volatility investors endured. All of them underperformed the Nifty 50 by 300 to 600 basis points.

Dividend yield funds, which focus on companies paying steady dividends, returned 4.91%—again, worse than just buying the Nifty 50. It’s a sound strategy—collect income while you wait for capital appreciation. But in practice, you would have done better in a conservative hybrid fund (5.98%) that didn’t pretend to be anything other than boring.

The Tax-Saving Irony

ELSS returned 3.44% in 2025—less than a third of the Nifty 50’s performance.

Aggressive hybrids returned 5.32%. Balanced advantage delivered 5.37%. Conservative hybrids posted 5.98%. Equity savings funds gained 6.28%. Even arbitrage funds, the most mechanical and soulless strategy imaginable, returned 6.16%.

The real story is in what happened beneath the surface. The broader Nifty 500 index closed the year with a gain of 6.69%. That’s the top 500 companies in India, and the index barely beat balanced advantage funds. The Nifty 50, representing India’s largest and most established companies, did 10.5%. Everything below that in market cap terms struggled.

Mid-caps and small-caps, which drove India’s bull run in previous years, reversed course. Fund managers tracking those segments had nowhere to hide.

Multi-asset funds had gold. Gold rose by 75-80% in 2025, vastly outperforming equities. That 15-25% allocation to precious metals turned modest equity returns into strong absolute performance. When the Nifty Smallcap 250 was losing 6%, gold was making money.

What the Bouquet Actually Means

When fund houses say “we offer a bouquet of funds,” what they’re really saying is “we’re covering all our bases.” If small-caps rally, they’ve got a small-cap fund. If large-caps outperform, they’ve got that covered too. Whatever happens, they can point to something in their lineup that worked.

The problem is shifted entirely to you. You’re supposed to know when to own small-caps versus large-caps. When to go aggressive versus conservative. When to embrace value versus growth. The fund house takes its fees regardless of which category you choose or how badly you time it.

Multi-asset funds short-circuit this game. They’re a fund-of-one that handles the asset allocation internally. You don’t need to decide whether this is a good year for equities or gold—the fund does that. You don’t need to rotate between categories—the rebalancing happens automatically.

The three-year numbers show this isn’t a one-year fluke. Multi-asset funds delivered 17.97% annualized over three years, just 140 basis points behind small-caps (19.28%) and ahead of large-caps (15.17%), flexi-caps (16.51%), and focused funds (16.20%). Over five years, the gap to small-caps (22.81%) widens to roughly 600 basis points, but multi-asset funds (16.76%) still beat large-caps (14.39%) and match flexi-caps (16.06%).

But 2025’s numbers—both from mutual funds and their underlying benchmarks—suggest a simpler truth: most investors don’t need a bouquet. They need one fund that handles the complexity for them. The Nifty 50 did fine. The Nifty Midcap 150 and Nifty Smallcap 250 didn’t. Fund managers tracking those indices couldn’t overcome the structural headwinds.

The investors who made 16.24% in multi-asset funds didn’t outsmart anyone. They just refused to play a game where only one or two asset classes were chosen and gold was ignored.

2025 Performance Scorecard: Key Equity and Hybrid Categories

Data as of December 2025.