Introduction
2025 has been a mixed year for mutual funds in India. After delivering stellar returns in the past two years, performance has been relatively subdued due to global economic uncertainties and market corrections. The euphoric growth of 2023 and 2024 set high expectations, but this year, investors are witnessing a more tempered performance, however, recent geopolitical developments—especially after the Pehalgam attack—have led to a surge in certain segments, especially defence and aerospace-focused stocks & mutual funds.
Let’s explore what’s driving the best-performing mutual funds of 2025. In this blog, we will cover
The current mutual fund landscape in 2025
Top-performing funds and stocks
The impact of India’s defence sector (including the Brahmos missile hype)
Why mutual funds remain a resilient long-term investment. The euphoric growth of 2023 and 2024 set high expectations
1. Subdued Performance in 2025 After Two Strong Years
Mutual funds had an exceptional run in 2023 and 2024, with many equity funds delivering 15-25% CAGR. However, 2025 has seen slower growth due to:
Global inflation concerns
Interest rate fluctuations
Profit booking after a bull run
Despite this, SIP (Systematic Investment Plan) inflows remain strong, indicating continued investor confidence.
2. Defence & Aerospace Mutual Funds Soar Post-Pehalgam Attack
The Pehalgam terror attack in April 2025 sparked speculation about increased government spending on defense, boosting stocks in the sector. As a result, defense-focused mutual funds have outperformed the broader market.
Top-Performing Defence & Aerospace Stocks (2025)
Hindustan Aeronautics Ltd (HAL) – ( 40%+ in 2 months )
Bharat Electronics Ltd (BEL) – ( 40%+ in 2 months )
The below chart shows 1 Month performance of Defence related stocks & mutual fund
3. Global Interest in BrahMos Missile & Beneficiary Stocks
India’s BrahMos missile (world’s fastest supersonic cruise missile) has attracted global interest, with countries like Vietnam, Philippines, and UAE in talks for procurement. This has boosted:
Defence PSUs (e.g., DRDO-linked companies)
Private sector players in missile tech supply chain
Mutual funds with exposure to these stocks have seen sharp rallies in recent months.
4. Past Performance ≠ Future Returns – A Word of Caution
Despite the momentary slowdown in broader market performance, mutual funds—particularly those with strong thematic or sectoral focus—continue to offer excellent potential. The recent spotlight on defence mutual funds underlines how quickly markets can adapt to global and national events. While some funds have delivered triple-digit returns in 3-5 years, investors must remember:
- Markets are cyclical – What goes up may correct
- Sectoral funds carry higher risk (e.g., defence stocks may cool off after a rally)
- Diversification is key – Avoid overexposure to a single stock
Whether you’re a seasoned investor or a beginner, mutual funds remain one of the best investment instruments for long-term wealth creation. Stay invested