May 2026 has once again highlighted how certain mutual fund categories can create exceptional wealth during favourable market cycles. Investors who stayed invested in select small cap, PSU, infrastructure, healthcare, and midcap mutual funds over the last three years have seen their investments more than double.
Several mutual funds generated massive 3-year returns ranging between 108% and 131% in cumulative terms. Interestingly, PSU funds, infrastructure funds, healthcare funds, and small cap funds dominated this list.
However, investors should remember that such extraordinary returns generally come with high volatility and market risk. Funds that outperform sharply during bull phases can also witness steep corrections during weak market conditions.
In this article, we will review 10 mutual funds that delivered exceptional 3-year returns as of May-2026, along with their investment objectives, risk factors, suitability, and our view.
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How We Filtered These Mutual Funds?
- We considered only equity mutual funds
- Included small cap, midcap, PSU, healthcare, infrastructure, and value-oriented funds
- Excluded international/global mutual funds
- Selected funds with highest 3-year returns
- Included Direct Plans for consistency
- Data considered as of 12-May-2026
10 Mutual Funds That Gave 108% to 131% Returns in Last 3 Years
Here is the list of top performing mutual funds based on 3-year returns.
1) Bandhan Small Cap Fund
Fund Objective
This fund invests predominantly in small cap companies that have strong growth potential and emerging business opportunities.
Annualised Returns
- 1 Month: 8.0%
- 3 Months: 4.1%
- 6 Months: 2.9%
- 1 Year: 20.2%
- 3 Years: 32.2% (₹ 1 Lakh would have become approximately ₹ 2.30 Lakhs)
- 5 Years: 24.5%
Who Can Invest?
- Aggressive investors
- Investors with investment horizon of 5+ years
- Investors looking for high-growth opportunities
Risk Factors
- Very high volatility due to small cap exposure
- Liquidity risks during market corrections
- Sharp drawdowns possible in bearish markets
My View
Bandhan Small Cap Fund has generated impressive long-term returns in the last three years. However, small cap funds can be extremely volatile and investors should prefer SIP investments instead of lump sum investments.
2) SBI PSU Fund
Fund Objective
The fund invests primarily in public sector undertakings (PSUs) across sectors aiming for long-term capital appreciation.
Annualised Returns
- 1 Month: -0.2%
- 3 Months: -3.3%
- 6 Months: 4.2%
- 1 Year: 18.2%
- 3 Years: 31.2% (₹ 1 Lakh would have become approximately ₹ 2.26 Lakhs)
- 5 Years: 25.4%
- 10 Years: 16.6%
Who Can Invest?
- Investors with high risk appetite
- Investors bullish on PSU sector growth
- Long-term investors
Risk Factors
- Sector concentration risks
- Government policy-related risks
- PSU stocks can be cyclical in nature
My View
PSU funds have delivered exceptional returns in the last few years due to strong rally in defence, railway, and energy-related PSU stocks. Investors should avoid overexposure to thematic sectors.
3) Motilal Oswal BSE Enhanced Value Index Fund
Fund Objective
This index fund follows a value investing approach by investing in fundamentally strong stocks available at attractive valuations.
Annualised Returns
- 1 Month: 0.1%
- 3 Months: -7.8%
- 6 Months: 0.7%
- 1 Year: 18.8%
- 3 Years: 30.5% (₹ 1 Lakh would have become approximately ₹ 2.22 Lakhs)
Who Can Invest?
- Investors preferring passive investing
- Investors seeking value-oriented strategies
- Moderate to aggressive investors
Risk Factors
- Market corrections can impact value stocks
- Index concentration risks
- Cyclical underperformance possible
My View
Value investing strategies tend to perform well during specific market cycles. Investors looking for passive investing with value tilt may consider such funds.
Explore more on 10 Mutual Funds That Gave 14% to 67% Returns in 3 Months (May-26 Update)
4) LIC MF Infrastructure Fund
Fund Objective
The fund invests in infrastructure-related companies including capital goods, construction, energy, and engineering sectors.
Annualised Returns
- 1 Month: 6.3%
- 3 Months: 4.2%
- 6 Months: 6.1%
- 1 Year: 23.6%
- 3 Years: 29.7% (₹ 1 Lakh would have become approximately ₹ 2.18 Lakhs)
- 5 Years: 26.1%
- 10 Years: 18.6%
Who Can Invest?
- Investors comfortable with sectoral exposure
- Long-term investors
- High risk investors
Risk Factors
- Sector concentration risk
- Economic slowdown can impact infrastructure spending
- Cyclical earnings volatility
My View
Infrastructure theme has performed well due to increased government spending and capital expenditure. However, sectoral funds can be highly volatile during economic slowdowns.
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5) ICICI Prudential Pharma Healthcare and Diagnostics (P.H.D) Fund
Fund Objective
The scheme invests in pharmaceutical, healthcare, hospitals, and diagnostics companies.
Annualised Returns
- 1 Month: 9.7%
- 3 Months: 8.1%
- 6 Months: 4.1%
- 1 Year: 14.5%
- 3 Years: 29.2% (₹ 1 Lakh would have become approximately ₹ 2.16 Lakhs)
- 5 Years: 17.0%
Who Can Invest?
- Investors seeking healthcare sector exposure
- Aggressive investors
- Investors with long-term horizon
Risk Factors
- Sector-specific risks
- Regulatory risks in pharma industry
- Currency fluctuations may impact export-oriented companies
My View
Healthcare sector has shown resilience during uncertain market conditions. However, investors should limit allocation to sectoral funds within their diversified portfolio.
6) Invesco India PSU Equity Fund
Fund Objective
This fund invests in equity and equity-related instruments of public sector companies.
Annualised Returns
- 1 Month: 1.3%
- 3 Months: -1.7%
- 6 Months: 0.6%
- 1 Year: 16.0%
- 3 Years: 29.1% (₹ 1 Lakh would have become approximately ₹ 2.15 Lakhs)
- 5 Years: 24.9%
- 10 Years: 19.5%
Who Can Invest?
- Investors with high risk appetite
- Investors bullish on PSU themes
- Long-term investors
Risk Factors
- Concentrated sector exposure
- Policy and regulatory risks
- High volatility in PSU stocks
My View
PSU-focused funds have created strong wealth in recent years. However, investors should understand that sectoral rallies may not sustain forever.
7) Aditya Birla Sun Life PSU Equity Fund
Fund Objective
The scheme primarily invests in public sector undertaking companies across sectors.
Annualised Returns
- 1 Month: 2.4%
- 3 Months: -1.4%
- 6 Months: 5.9%
- 1 Year: 18.6%
- 3 Years: 28.9% (₹ 1 Lakh would have become approximately ₹ 2.14 Lakhs)
- 5 Years: 25.9%
Who Can Invest?
- Aggressive investors
- Investors seeking thematic exposure
- Long-term investors
Risk Factors
- High dependence on government policies
- Concentration risks
- Sectoral volatility
My View
This fund has benefited from the sharp rally in PSU stocks over the last few years. Investors should avoid putting large allocation in single-theme funds.
8) HSBC Midcap Fund
Fund Objective
The fund invests in midcap companies across sectors with focus on growth-oriented businesses.
Annualised Returns
- 1 Month: 8.0%
- 3 Months: 6.4%
- 6 Months: 8.5%
- 1 Year: 26.6%
- 3 Years: 28.3% (₹ 1 Lakh would have become approximately ₹ 2.11 Lakhs)
- 5 Years: 20.6%
- 10 Years: 18.8%
Who Can Invest?
- Moderate to high risk investors
- Investors seeking long-term wealth creation
- Investors looking for quality midcap exposure
Risk Factors
- Midcap valuation risks
- Higher volatility compared to large cap funds
- Earnings slowdown can impact performance
My View
HSBC Midcap Fund has shown relatively consistent performance across multiple periods. Midcap funds can offer a balance between growth and stability compared to small cap funds.
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9) ITI Small Cap Fund
Fund Objective
This fund invests in emerging small cap businesses with long-term growth opportunities.
Annualised Returns
- 1 Month: 10.6%
- 3 Months: 8.8%
- 6 Months: 5.9%
- 1 Year: 20.3%
- 3 Years: 28.3% (₹ 1 Lakh would have become approximately ₹ 2.11 Lakhs)
- 5 Years: 19.5%
Who Can Invest?
- High risk investors
- Long-term SIP investors
- Investors seeking aggressive growth
Risk Factors
- Small cap volatility
- Liquidity concerns during corrections
- Sharp drawdowns possible during bearish phases
My View
ITI Small Cap Fund has generated strong returns in recent years. Investors should ideally invest through SIP mode to manage volatility risk better.
10) SBI Healthcare Opportunities Fund
Fund Objective
The scheme invests predominantly in healthcare, pharmaceutical, biotechnology, and diagnostics companies.
Annualised Returns
- 1 Month: 9.2%
- 3 Months: 9.4%
- 6 Months: 7.6%
- 1 Year: 13.1%
- 3 Years: 27.9% (₹ 1 Lakh would have become approximately ₹ 2.09 Lakhs)
- 5 Years: 16.9%
- 10 Years: 14.1%
Who Can Invest?
- Investors seeking sector-specific exposure
- Aggressive investors
- Long-term investors
Risk Factors
- Sector concentration risk
- Regulatory and pricing risks
- Export-related uncertainties
My View
Healthcare funds can provide diversification during uncertain economic conditions. However, sector funds should form only a limited portion of an investor’s portfolio.
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Top Performing Mutual Funds Based on 3-Year Returns
| Fund Name | 3 Yr CAGR (%) | 5 Yr CAGR (%) | 10 Yr CAGR (%) | Category of Mutual Fund |
|---|---|---|---|---|
| Bandhan Small Cap Fund | 32.2 | 24.5 | — | Small Cap Fund |
| SBI PSU Fund | 31.2 | 25.4 | 16.6 | PSU Fund |
| Motilal Oswal BSE Enhanced Value Index Fund | 30.5 | — | — | Value Index Fund |
| LIC MF Infrastructure Fund | 29.7 | 26.1 | 18.6 | Infrastructure Fund |
| ICICI Prudential Pharma Healthcare and Diagnostics (P.H.D) Fund | 29.2 | 17.0 | — | Healthcare & Pharma Fund |
| Invesco India PSU Equity Fund | 29.1 | 24.9 | 19.5 | PSU Fund |
| Aditya Birla Sun Life PSU Equity Fund | 28.9 | 25.9 | — | PSU Fund |
| HSBC Midcap Fund | 28.3 | 20.6 | 18.8 | Midcap Fund |
| ITI Small Cap Fund | 28.3 | 19.5 | — | Small Cap Fund |
| SBI Healthcare Opportunities Fund | 27.9 | 16.9 | 14.1 | Healthcare Fund |
| DSP India T.I.G.E.R. Fund | 27.9 | 26.0 | 19.5 | Infrastructure Fund |
| UTI Healthcare Fund | 27.9 | 15.2 | 14.4 | Healthcare Fund |
| WhiteOak Capital Mid Cap Fund | 27.9 | — | — | Midcap Fund |
| Mirae Asset Healthcare Fund | 27.7 | 16.3 | — | Healthcare Fund |
| Invesco India Mid Cap Fund | 27.6 | 23.0 | 20.3 | Midcap Fund |
Summary of Mutual Fund Performance
- PSU funds dominated the 3-year performance chart
- Small cap funds continued to generate strong long-term returns
- Infrastructure and healthcare themes performed well
- Midcap funds showed strong consistency across periods
- Sectoral and thematic funds carry higher volatility risks
- SIP investing remains a better strategy for volatile categories
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Conclusion
The last three years have been highly rewarding for investors in PSU, small cap, infrastructure, and healthcare mutual funds. Several schemes more than doubled investor wealth during this period.
However, investors should avoid investing purely based on past returns. Many of these categories are highly volatile and can witness steep corrections during weak market conditions.
Investors should align mutual fund investments with their financial goals, risk appetite, and investment horizon. Diversification across categories along with disciplined SIP investing can help manage market volatility effectively.
Disclaimer: Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing.
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4 comments
Add a comment ↓Sir
how to identify such MEs which gives >30% CAGR …i m puzzled to see such returns but my investment not showing returns…where i m making mistakes
You can’t. Keep investing in consistent performing mutual funds wit both SIP and lumpsumps (during market corrections like it is happening now).
If I start SIP from May,2026 on Bandhan small cap fund for long term, will it be a good decision now. If possible please let me know.
My (small investor with log term view) risk appetite is ‘moderate – to – bit aggressive’ and if this fund is ok, do I add in my satellite portfolio?
This is the good time to start your SIP as markets have corrected significantly and we do not know whether there could be correction or it would go up. However if you are moderate risk taker, avoid smallcap or midcaps, focus on largecap funds only. Smallcap funds are for high risk takers