Mutual Fund Analysis: Which Sectors Drove The Gains In 2024 & What To Expect In 2025?

Real estate, precious metals, and nearly every other asset type will be recalled as having benefited in 2024. A respectable year was also enjoyed by equity mutual funds. Nifty ended up for the tenth straight year, despite the Indian stock markets seeing nearly negative returns over the past six months. In 2024, the Indian mutual fund sector reached new heights, surpassing Rs 68 lakh crore in assets under management (AUM) according to figures released in November of that year. With an AUM of Rs 30.5 lakh crore, equity mutual funds had the most gain.

In 2025, the mutual fund sector in India is expected to continue growing steadily. Notwithstanding possible barriers from domestic market fluctuation and global uncertainties, the mutual fund industry is anticipated to grow steadily in 2025 due to favourable economic policies, fundamental economic factors, rising retail participation, macroeconomic tailwinds, and growing investor interest in SIPs, which reached historic highs in 2024, which comprises a record high of Rs 13.54 lakh crore in November 2024 and SIP accounts at Rs 10.23 crore. Based on an interview with Mr Siddharth Alok, AVP Investments, Epsilon Money, here is the potential for the mutual fund industry in 2025 based on 2024 trends.

1. Mutual Fund Sector Analysis: Which Industries Drove the Gains in 2024?

While almost all sectors delivered positive returns, it was the government focus areas which once again saw strong momentum, with Defence, Manufacturing & infrastructure delivering double-digit returns. Recent market volatility has led to these sectors giving away some gains, with healthcare emerging as the market winner in the year-end - Nifty Healthcare Index TRI is up ~40%.

2. SIP vs. Lump Sum: What Worked Better in 2024?

Taking point-to-point returns has its own drawbacks. Anyone who started on the 1st of January 2024 would be sitting on decent gains - Nifty 500 TRI is up ~16%, while someone who started mid-year would not share the same feelings. Also, a major difference between lump sum & SIP which we tend to ignore is the availability of free surplus, which is why investing every month becomes a more prudent way for many investors.

3. How Mutual Funds Performed Compared To Other Asset Classes in 2024?

2024 will overall be remembered as the year wherein almost all asset classes contributed - precious metals to real estate. Equity mutual funds had a decent year too. While the last 6 months have generated close to zero returns for the Indian stock markets, Nifty is closing positive for the record 10th consecutive year. SMID companies were able to deliver strong returns, with Nifty Midcap 150 TRI & Nifty Smallcap 250 TRI up ~24% & ~26% respectively. S&P 500 stood as the standout performer for the year with Fixed Income delivering between 5 - 9% depending on their maturity profile & risk.

4. Top Mutual Fund Sectors to watch out for in 2025 Based on 2024 Trends.

While there is certainly some pocket of froth in the markets, it remains a pickers market. On a broad level, financials remain fairly valued. Recently published RBI's Financial Stability Report shows the problems pertaining to the sector, if the companies can ride against the rising threats, they may do well. Select consumption & energy can also potentially do well while the government's catchment areas should continue delivering. It would be better for investors to think 2035, and not 2025!

Note: All data taken from AceMF as of 30th December 2024.