8 High-Return Mutual Funds with 3-Month Gains up to 54%

When it comes to wealth creation, most investors look at mutual funds from a long-term perspective. However, recent trends in the Indian markets have surprised many, as a few mutual fund schemes delivered exceptional short-term returns. Over the last three months, certain funds generated gains between 20% and 54%, led primarily by thematic and sector-focused strategies.

While these numbers are eye-catching, it is important to remember that such high returns in a short period are usually linked to concentrated themes or sectors. In this article, we will explore 8 mutual fund schemes that outperformed in the last quarter, their investment objectives, risk factors, and who should consider them.

What Are Mutual Funds and Why Are They Popular?

Mutual funds are investment vehicles that pool money from several investors and allocate it into diversified portfolios of equities, bonds, or other securities. These funds are managed by professionals, making them suitable for investors who may not have the expertise or time to manage their own stock portfolios.

Key reasons investors prefer mutual funds include:

• Diversification across different companies and sectors
• Professional management of funds
• Liquidity, with the ability to buy and sell easily
• Options across risk profiles, from conservative to aggressive

While the long-term nature of mutual funds is often highlighted, short-term movements can also provide unique opportunities for high-risk investors.

Why Look at 3-Month Performance?

Short-term returns are not the best measure of mutual fund performance, but they can highlight strong trends within sectors. The last three months saw Indian markets rebounding after a phase of volatility caused by inflationary concerns, interest rate hikes, and geopolitical events.

Defence sector stocks, in particular, gained from government initiatives, higher budget allocations, and modernization programs. Similarly, capital market and PSU funds rallied on improving fundamentals and investor confidence. These shifts helped certain mutual funds deliver stellar returns within just a quarter.

How These Mutual Funds Were Selected

The funds highlighted here were chosen based on the following criteria:

• Equity mutual funds, including thematic, sectoral, and global funds
• Top-performing schemes with 3-month returns above 20%
• Data sourced from Value Research and market reports as of May 2025

This filtered list brings us to 8 mutual fund schemes with extraordinary short-term performance.

Top 8 Mutual Fund Schemes with 20% to 54% Returns in 3 Months

1. Groww Nifty India Defence ETF FoF

• Category: Thematic – Defence
• 3-Month Return: 53.8%
• Objective: Invests in Nifty India Defence ETF, which includes leading defence companies.
• Risk: Extremely high due to sector concentration and policy dependence.
• Suitable For: Aggressive investors who believe in India’s defence growth story.

2. Motilal Oswal Nifty India Defence Index Fund

• Category: Index Fund – Defence
• 3-Month Return: 53.2%
• Objective: Replicates Nifty India Defence Index performance.
• Risk: Volatility tied directly to defence sector movement.
• Suitable For: Thematic investors looking for targeted exposure.

3. Aditya Birla Sun Life Nifty India Defence Index Fund

• Category: Index Fund – Defence
• 3-Month Return: 52.9%
• Objective: Tracks Nifty India Defence Index.
• Risk: Lack of diversification beyond defence sector.
• Suitable For: High-risk investors confident about defence sector momentum.

4. HDFC Defence Fund

• Category: Sectoral – Defence
• 3-Month Return: 38.4%
• Objective: Invests in defence and allied industries.
• Risk: Thematic exposure, newer fund with limited track record.
• Suitable For: Investors with a long-term focus on defence.

5. Tata Nifty Capital Markets Index Fund

• Category: Index Fund – Financial Services
• 3-Month Return: 25.3%
• Objective: Mirrors Nifty Financial Services Index.
• Risk: Sensitive to interest rate changes and economic cycles.
• Suitable For: Medium to long-term investors betting on India’s financial growth.

6. Motilal Oswal Nifty Capital Market Index Fund

• Category: Index Fund – Financial Services
• 3-Month Return: 25.2%
• Objective: Replicates performance of financial services companies.
• Risk: Exposure limited to banking, insurance, and NBFCs.
• Suitable For: Investors seeking targeted exposure to financial services.

7. Invesco India PSU Equity Fund

• Category: Equity – PSU
• 3-Month Return: 22.3%
• Objective: Invests in public sector companies across industries.
• Risk: Highly dependent on government policy and disinvestment plans.
• Suitable For: Investors comfortable with PSU volatility and cyclical sectors.

8. SBI Energy Opportunities Fund

• Category: Sectoral – Energy
• 3-Month Return: 20%
• Objective: Focuses on energy-related businesses, both traditional and renewable.
• Risk: Dependent on crude prices and global energy dynamics.
• Suitable For: Long-term investors bullish on India’s energy sector growth.

Risks of Investing in Sectoral and Thematic Funds

While the short-term performance of these funds looks impressive, investors must recognize the risks involved:

• High volatility due to concentration in one sector
• Vulnerability to policy changes and geopolitical events
• Potential underperformance if the sector cycle turns unfavourable
• Lack of diversification compared to broad market funds

These funds should be part of a satellite portfolio rather than the core of your investments.

Who Should Consider These Funds?

• Investors with high risk appetite and sector knowledge
• Those looking to add thematic exposure to diversify a larger portfolio
• Investors willing to hold for the long term despite short-term volatility
• Not suitable for conservative investors or those with low risk tolerance

Final Thoughts

The last three months have been remarkable for certain sectors, especially defence and financial services, resulting in mutual fund schemes delivering 20% to 54% returns in a short span. However, chasing short-term performance can be risky.

Instead, investors should align their decisions with financial goals, time horizon, and risk appetite. These thematic funds can add value when used strategically but should never replace diversified, long-term investments such as large-cap, flexi-cap, or hybrid funds.

Short-term outperformance is exciting, but disciplined investing and diversification remain the true drivers of wealth creation.