3 equity mutual fund categories lose up to 7% in 2025. Expert shares what went wrong

Technology based funds
Live Events
Pharma & Healthcare funds
Small cap funds
With these funds down from their 52-week high NAV, the important question that arises is whether one should go for these sectors now and for small caps should one consider this as an opportunity to invest more or wait for further correction?
Way forward for these categories
Technology based funds
Pharma & Healthcare funds
Small cap funds
Three equity mutual fund categories lost the most of up to 7% in the current calendar years so far. There were around 22 categories in the said period, of which 11 were in red and 11 were in green.The top three losers included Technology based funds, Pharma & Healthcare sector funds, and small cap funds which lost 7.45%, 5.41%, and 4.10% respectively in the said time period. The other eight lost between 0.19% to 1.95% in the same period. Technology funds on an average lost 7.45% in the current calendar year so far. There were 12 funds in the category, of which Tata Digital India Fund lost the most of around 12.25% in 2025 so far, followed by Kotak technology Fund which lost 9.55% in the same period. WOC Digital Bharat Fund lost the lowest of around 4.13% in the said time period.According to an expert, the sector has seen a decline, primarily due to a combination of global tech fatigue and valuation concerns and after a sharp run-up in 2023, many IT stocks were trading at elevated valuations, which invited profit-booking.'Additionally, slower-than-expected recovery in enterprise tech spending in the US and Europe, coupled with cautious guidance from Indian IT majors, led to subdued investor sentiment,' Sagar Shinde, VP of Research at Fisdom shared with ETMutualFunds.Pharma & Healthcare sector funds on an average lost 5.41% in the current calendar year so far. There were 17 funds in the category of which DSP Healthcare Fund lost the most of around 8.87%. Quant Healthcare Fund lost the lowest of around 1.90% in the similar time period.Shinde is of the opinion that the sector got impacted by a mix of global and local challenges and US generic pricing remains under pressure, while recent tariff developments by the US government — including potential hikes on pharmaceutical imports — have raised concerns for Indian drug exporters.Small cap funds on an average lost 4.10% in 2025 so far. Out of 29 funds in the category, LIC MF Small Cap Fund lost the most of around 12.31% in the same period. HSBC Small Cap Fund lost 8.24% in the same period.ICICI Pru Smallcap Fund lost the lowest of around 0.17% in 2025 so far. Only Quantum Small Cap Fund offered positive returns in the said time period.The small cap segment can be extremely volatile in the short term, but they have the potential to offer very high returns over a long period has been in the red zone in 2025 largely due to muted corporate earnings and valuation fatigue and after a strong rally in 2023 and 2024, small-cap stocks had run ahead of fundamentals, leading to elevated valuations.The expert also shared with ETMutualFunds that in the recent earnings season, many small-cap companies reported weaker-than-expected numbers, especially in sectors like textiles, chemicals etc — impacted by sluggish demand and margin pressures which triggered profit-booking, as investors became more selective and cautious about overvalued pockets within the small-cap universe. Additionally, limited institutional buying and waning retail enthusiasm have also contributed to the weakness, Shinde added.An analysis of NAV of the funds in these categories showed that they are down between 2-16% from their 52-week high NAVs except for Mirae Asset Small Cap Fund. The fund was launched in January 2025 and hit its 52-week high NAV on June 6 only.While addressing this, Shinde answers that in the technology sector, it's better to wait as the sector is still facing margin and demand pressures, and any recovery may take time and the exposure is best taken through diversified equity funds rather than pure tech funds.'In pharma, recent corrections have created improved entry points. Long-term structural drivers remain intact, and staggered investments can be considered. In small caps, while valuations have moderated, earnings delivery remains patchy. A phased approach via SIPs into quality-oriented small-cap funds is advisable rather than aggressive lump sum investments, Shinde shared the recommendation with ETMutualFunds.ETMutualFunds also checked how these categories have performed in the last two calendar years i.e. 2023 and 2024 to know how the categories are expected to perform in 2025.In 2023 and 2024, tech funds gave an average return of 34.21% and 26.76% respectively. Shinde adds that these funds have cautious near-term outlook as global IT spending remains soft and margin pressures continue and a meaningful recovery may be gradual, especially in large deal flows and discretionary tech spends. 'Stick to diversified mutual funds for now rather than going overweight on sector-specific tech funds. Monitor the H2 outlook for potential re-entry, especially if deal momentum picks up or valuation resets become attractive,' he adds.Pharma & healthcare funds offered an average return of 35.96% and 40.03% in 2023 and 2024 respectively. For these funds, Shinde shares that the outlook is neutral to positive overall, but very constructive on hospitals and specialty pharma segments and while the US pricing pressure remains a concern, domestic demand, growth in chronic therapies, and export diversification are supportive.Small cap funds offered an average return of 41.08% and 26.38% in 2023 and 2024 respectively. The expert believes that the outlook for small cap funds is moderately positive and the space has seen a healthy valuation correction, but earnings delivery will be key. 'As India's capex, infrastructure, and manufacturing cycles gain traction, select small-cap companies stand to benefit. However, dispersion within the segment is high, making active management and bottom-up stock selection critical. A disciplined, SIP-based approach is advisable,' Shinde adds.One should always consider their risk appetite, investment horizon and goals before making any investment decision.: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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