The January-to-March quarter of FY26 saw a sharp divergence in mutual fund category returns. Mid-cap funds emerged as the top-performing equity category with an average return of 6.2 percent, followed closely by flexi-cap funds at 5.8 percent. Large-cap funds delivered a more modest 4.1 percent, while small-cap funds, which had led the charts for much of FY25, returned just 2.9 percent as SEBI's stress-testing norms and profit-booking weighed on the segment.
Category-Wise Performance Breakdown
Among equity categories, the Nifty Midcap 150 index gained 7.1 percent in Q4 FY26, providing a tailwind for actively managed mid-cap funds. Top performers in the category included funds from Motilal Oswal, Kotak, and Quant AMC, each delivering between 7.5 and 9 percent for the quarter. Flexi-cap funds benefited from their ability to shift allocations toward mid-caps and selectively toward value picks in the large-cap space. The BSE 500 index, which serves as a proxy for the broader flexi-cap universe, returned 5.4 percent.
Large-cap funds tracked the Nifty 50's 4.3 percent gain reasonably well. However, active large-cap fund managers continue to struggle against their benchmarks: according to the latest SPIVA India scorecard, roughly 72 percent of active large-cap funds underperformed the Nifty 50 on a one-year basis. This has accelerated the shift toward passive large-cap index funds and ETFs, whose combined AUM now exceeds Rs 3 lakh crore.
Small-cap funds, the darlings of FY25, faced headwinds. The Nifty Smallcap 250 index gained only 2.4 percent in Q4 FY26 as elevated valuations and SEBI's enhanced stress-testing disclosures prompted some investors to book profits. Several small-cap funds restricted fresh lump-sum inflows during the quarter, citing limited deployment opportunities at reasonable valuations.
Debt and Hybrid Categories
On the fixed-income side, medium-duration and corporate bond funds performed well, returning between 2.1 and 2.6 percent for the quarter, aided by the RBI's accommodative stance and expectations of a rate cut in the April 2026 policy meeting. Gilt funds with a 10-year constant duration delivered approximately 2.8 percent as bond yields softened from 7.05 percent to 6.82 percent during the quarter.
Aggressive hybrid funds, which allocate 65 to 80 percent to equities, returned an average of 4.6 percent, offering a balanced risk-reward profile for conservative equity investors. Balanced advantage funds, with their dynamic equity-debt allocation, returned 3.2 percent, underperforming pure equity categories but outperforming debt on a risk-adjusted basis.
Sectoral Highlights
Among sectoral and thematic funds, pharma and healthcare funds were standout performers, returning 8.9 percent as the sector benefited from strong Q3 FY26 earnings and renewed buying interest from foreign institutional investors. Banking and financial services funds returned 5.1 percent, while IT sector funds delivered 4.4 percent, recovering from a sluggish first half as global tech spending showed signs of revival.
What Investors Should Do
Chasing the best-performing category from the previous quarter is a well-documented behavioural trap. Data from AMFI shows that the top-performing equity category in one quarter has only a 22 percent probability of being the top performer in the next. Flexi-cap and multi-cap funds, which give the fund manager latitude to move across the market-cap spectrum, remain the most sensible core holding for most investors.
If you hold mid-cap funds that have run up significantly, consider rebalancing to your target allocation rather than adding more. Use our Mutual Fund Returns Calculator to assess the actual XIRR on your holdings and the CAGR Calculator to compare performance against benchmarks. The best mutual fund strategy remains diversified, disciplined, and aligned with your financial goals rather than the latest quarterly leader board.
Source
AMFI Category-wise NAV Data, NSE Indices Performance Report Q4 FY26