Mutual Funds FY26: Midcaps outperform others - why your fund selection is crucial 

Mutual fund performance in FY 2025–26 has revealed a sharp divergence between top and bottom performers, underscoring the growing importance of fund selection in a volatile equity market. Data shared by research analyst Mitesh Pate highlights a significant 28 percentage point gap between the best and worst-performing schemes, reinforcing that where you invest can materially impact returns. 

Mid-cap funds

If you were invested in the right mid-cap funds, FY26 could have delivered solid returns despite a volatile market. Mid-cap schemes accounted for three of the top five performers, led by the ICICI Prudential Midcap Fund, which returned 11.1%.

Other strong performers included the HSBC Midcap Fund (7.5%) and the WOC Mid Cap Fund (5.4%), indicating that selective stock-picking paid off in this segment. The Union Small Cap Fund (5.8%) and Groww Multicap Fund (5.6%) also featured among the top performers.

Importantly, if you had exposure to these funds, you would have seen positive returns even as broader markets remained under pressure.

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Same category, very different outcomes

A key takeaway from FY26 is that being in the “right category” was not enough—you needed to be in the right fund within that category. Mid-cap funds alone showed a wide return range, from +11.1% to -12.9%, highlighting how fund strategy directly impacted your returns.

Multi-cap funds tell a similar story. While some schemes delivered gains, others ended up among the worst performers. This means that if you simply chose a category without evaluating the fund’s portfolio or strategy, your returns could have been significantly impacted.

Where did you lose money

On the downside, several funds reported double-digit negative returns, reflecting the challenges faced by certain strategies in a fluctuating market environment. The Tata Small Cap Fund was the worst performer, declining -16.6% during FY26.

Other laggards included the Motilal Oswal Multi Cap Fund, which fell -13.7%, and the Motilal Oswal Midcap Fund, which declined -12.9%. The Samco Multi Cap Fund and Tata Large & Mid Cap Fund also posted losses of -12.2% and -12.1%, respectively.

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The presence of both mid-cap and multi-cap funds among the worst performers further emphasizes that underperformance was not limited to a single category, but rather linked to fund-specific strategies and execution.

Key takeaway for investors

The FY 2025–26 performance data sends a clear message for investors: returns in equity mutual funds are increasingly driven by fund selection rather than category choice alone. A 28% return gap within similar categories is significant and can have a lasting impact on long-term wealth creation.

For investors, this highlights the need to:

Focus on consistent fund managers with proven track records
Diversify across fund houses and investment styles
Regularly review portfolio performance and rebalance when necessary

As markets continue to evolve, a disciplined and research-driven approach to mutual fund investing will be critical. Ultimately, FY26 demonstrates that successful investing is not just about being in the right category—but about choosing the right fund within that category.