Investors often focus on mutual funds that have generated strong recent returns. Over the last three years, several mutual funds across defence, PSU, infrastructure, healthcare, value investing and small-cap categories have delivered exceptional performance.
While broader equity markets have generated healthy returns during this period, some mutual funds significantly outperformed and generated annualized returns ranging from 27% to 42% CAGR over the last three years.
In this article, we analyse 10 mutual funds that generated 27% to 42% CAGR in the last three years, understand the factors that drove their performance and discuss what investors should keep in mind before investing.
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How We Filtered These Mutual Funds
To prepare this list, we considered all eligible direct mutual fund schemes across categories, including:
- Large Cap Funds
- Mid Cap Funds
- Small Cap Funds
- Flexi Cap Funds
- Sectoral Funds
- Thematic Funds
- Index Funds
- Value-Oriented Funds
- Healthcare Funds
The following were excluded:
- Regular Plans
- Exchange Traded Funds (ETFs)
- Debt Mutual Funds
- Hybrid Mutual Funds
- Schemes without a minimum three-year track record
Why Are International Mutual Funds Not Included?
Some international and global mutual funds have delivered strong returns during the last three years and could have featured among the top-performing schemes.
However, several overseas mutual fund schemes have faced restrictions on fresh subscriptions due to industry-wide overseas investment limits. Since many such schemes are currently not readily available for fresh investments by new investors, we have excluded international mutual funds from this analysis.
The objective of this article is to focus on mutual funds that are generally available for investment at the time of analysis.
The funds were ranked based on their 3-year CAGR returns as of June 2026. The purpose of this exercise is to identify top-performing mutual funds based on historical returns and not to recommend any specific mutual fund scheme for investment.
What Has Driven Such Strong Returns in the Last 3 Years?
The list of top performers reveals a clear trend. Investors who participated in specific themes rather than broad market funds were rewarded significantly during the last three years.
Defence Sector Boom
Defence-related companies witnessed significant investor interest due to rising government spending, defence exports, increasing order books and localization initiatives.
PSU Re-Rating
Public Sector Undertakings (PSUs) experienced a major re-rating driven by stronger earnings, improved corporate governance and increased investor confidence.
Infrastructure Expansion
India’s focus on roads, railways, power, manufacturing and capital expenditure supported infrastructure-related companies and mutual funds.
Value Investing Revival
Value-oriented investing strategies performed well as investors increasingly preferred reasonably valued companies with improving fundamentals.
Healthcare Recovery
Healthcare and pharmaceutical companies benefited from growing healthcare demand, diagnostics expansion and an improving business outlook.
10 Mutual Funds That Generated 27% to 42% CAGR in the Last 3 Years
| Mutual Fund | 3-Year CAGR (%) |
|---|---|
| HDFC Defence Fund | 42.0 |
| UTI Nifty 500 Value 50 Index Fund | 31.2 |
| Motilal Oswal BSE Enhanced Value Index Fund | 30.8 |
| SBI PSU Fund | 30.2 |
| Bandhan Small Cap Fund | 29.5 |
| LIC MF Infrastructure Fund | 28.8 |
| HSBC Midcap Fund | 27.8 |
| Aditya Birla Sun Life PSU Equity Fund | 27.7 |
| ICICI Prudential Pharma Healthcare and Diagnostics Fund | 27.3 |
| UTI Healthcare Fund | 27.2 |
Returns are CAGR returns based on latest available data and are provided for information purposes only.
Fund-Wise Analysis
1. HDFC Defence Fund
3-Year CAGR: 42.0%
HDFC Defence Fund emerged as the top performer in this list. The defence sector benefited from increasing government spending, defence exports, indigenization initiatives and strong order books across defence companies.
Category: Defence Fund
2. UTI Nifty 500 Value 50 Index Fund
3-Year CAGR: 31.2%
The fund follows a value-investing strategy by tracking companies that appear attractively valued relative to their fundamentals. The revival of value investing significantly contributed to its performance.
Category: Value Index Fund
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3. Motilal Oswal BSE Enhanced Value Index Fund
3-Year CAGR: 30.8%
The fund focuses on value-oriented stocks and benefited from the market’s preference for companies with reasonable valuations and improving earnings.
Category: Value Index Fund
4. SBI PSU Fund
3-Year CAGR: 30.2%
5-Year CAGR: 24.2%
10-Year CAGR: 16.2%
The PSU sector witnessed one of the strongest rebounds in recent years. Improved profitability, better governance standards and stronger investor confidence contributed to the fund’s performance.
Category: PSU Fund
5. Bandhan Small Cap Fund
3-Year CAGR: 29.5%
5-Year CAGR: 22.1%
Small-cap companies benefited from strong domestic growth, earnings expansion and increased investor participation.
Category: Small Cap Fund
6. LIC MF Infrastructure Fund
3-Year CAGR: 28.8%
5-Year CAGR: 24.5%
10-Year CAGR: 18.5%
India’s ongoing infrastructure development cycle supported companies involved in construction, engineering, industrials and capital goods sectors.
Category: Infrastructure Fund
7. HSBC Midcap Fund
3-Year CAGR: 27.8%
5-Year CAGR: 20.1%
10-Year CAGR: 18.8%
Mid-cap companies continued to benefit from economic growth and business expansion opportunities, resulting in strong long-term performance.
Category: Mid Cap Fund
8. Aditya Birla Sun Life PSU Equity Fund
3-Year CAGR: 27.7%
5-Year CAGR: 24.3%
Like SBI PSU Fund, this scheme benefited from the strong re-rating of public sector companies over the last few years.
Category: PSU Fund
9. ICICI Prudential Pharma Healthcare and Diagnostics Fund
3-Year CAGR: 27.3%
5-Year CAGR: 16.3%
Healthcare, pharmaceutical and diagnostics companies gained from increasing healthcare awareness, rising demand and improving business fundamentals.
Category: Healthcare Fund
10. UTI Healthcare Fund
3-Year CAGR: 27.2%
5-Year CAGR: 15.1%
10-Year CAGR: 14.7%
The healthcare sector witnessed renewed investor interest as long-term growth drivers remained intact.
Category: Healthcare Fund
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Key Observations From These Top Performing Mutual Funds
A closer look at the list reveals some interesting trends.
Sectoral and Thematic Funds Dominated
Seven out of ten funds belong to sectoral or thematic categories. This indicates that focused themes significantly outperformed diversified funds during this period.
Government-Led Themes Created Wealth
Defence, PSU and Infrastructure funds collectively account for several positions in the ranking. Government spending and policy initiatives played a major role in their performance.
Value Investing Made a Strong Comeback
Both UTI Nifty 500 Value 50 Index Fund and Motilal Oswal BSE Enhanced Value Index Fund secured places among the top performers.
Healthcare Funds Returned to the Spotlight
After a relatively subdued phase, healthcare and diagnostics-focused funds have once again emerged among the top-performing categories.
Risks Investors Should Consider
Before investing in any of these mutual funds, investors should understand the associated risks.
Sector Concentration Risk
Sectoral funds depend heavily on the performance of specific industries and may witness sharp fluctuations.
Theme Reversal Risk
Themes that outperform during one market cycle may underperform during another cycle.
Market Risk
Equity mutual funds are subject to market fluctuations and economic conditions.
Return Chasing Risk
Investors should avoid selecting mutual funds solely based on recent performance.
MyInvestmentIdeas View
One of the most striking observations from this list is the absence of traditional diversified large-cap funds. Instead, the winners were largely concentrated in defence, PSU, infrastructure, healthcare and value-investing themes.
This highlights an important lesson for investors. Sectoral and thematic funds can generate extraordinary returns during favourable cycles. However, they can also witness periods of sharp underperformance when market leadership changes.
It is also worth noting that some international mutual funds delivered competitive returns during this period. However, since several overseas schemes continue to face restrictions on fresh subscriptions linked to overseas investment limits, they have not been included in this analysis.
Investors should evaluate these funds in the context of their overall portfolio, risk appetite and investment goals rather than investing solely based on historical returns.
Frequently Asked Questions (FAQs)
Which mutual fund delivered the highest 3-year CAGR?
HDFC Defence Fund topped the list with a 3-year CAGR of 42.0%.
Why are Defence and PSU funds performing well?
Government spending, policy support, improved profitability and stronger investor sentiment contributed to their performance.
Why are international mutual funds not included?
Several international mutual funds currently face restrictions on fresh subscriptions due to overseas investment limits. Hence, they have been excluded from this analysis.
Are sectoral funds suitable for all investors?
No. Sectoral funds carry higher concentration risk and may not be suitable for every investor.
Can these returns continue in the future?
Past performance may or may not be sustained in the future. Investors should not rely solely on historical returns while making investment decisions.
Conclusion
The last three years have been rewarding for investors who participated in defence, PSU, infrastructure, healthcare and value-investing themes. The top-performing mutual funds generated impressive annualized returns ranging from 27% to 42% CAGR.
While these returns highlight the opportunities available in equity markets, investors should focus on diversification, asset allocation and suitability rather than chasing recent winners. Historical performance should be viewed as one factor among many while evaluating mutual fund investments.
Disclaimer: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance may or may not be sustained in the future and should not be used as the sole basis for investment decisions.
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