Indian equities have developed an unusual ability to absorb bad news.
Geopolitical tensions rise. Crude oil becomes a concern. Global markets turn uncertain. Valuations invite questions. Yet the Indian market keeps finding reasons to stay resilient.
That resilience was one of the central themes at Moneycontrol’s Mutual Fund Summit in New Delhi on September 16, where Anish Tawakley, CIO at DSP Mutual Fund, Sachee Trivedi, Founder & CIO at Trident Capital Investments, and Deepak Shenoy, CEO of Capitalmind Mutual Fund, discussed the outlook for Indian equities in an uncertain global environment.
For an investor running a monthly SIP, however, there is a more uncomfortable question hiding underneath the market optimism.
Does a resilient stock market automatically mean dependable mutual fund returns?
Not necessarily.
The difference matters because investors do not buy the index. They buy schemes. Those schemes hold different companies, sectors, market capitalisations and, in some cases, debt instruments. Their portfolios can behave very differently even when the broader market looks calm.
And this is where the conversation around risk becomes more useful than a conversation about returns alone.
The market can be resilient without being predictable
The message coming from the summit was not that Indian equities are headed for trouble. It was that investors should not confuse resilience with predictability.
Indian markets have absorbed a series of external shocks. But the ability to absorb bad news does not tell investors what the next few years of returns will look like.
Sachee Trivedi described the current market mood as one in which markets appear to be shrugging off almost everything thrown at them.
That observation is worth considering from an investor’s perspective.
When markets repeatedly recover from bad news, investors can start assuming that the next shock will also be absorbed. That assumption can quietly change behaviour.
A correction begins to look like a buying opportunity before it has even happened. Valuations appear less important because earnings have been strong. A fund that has delivered well over the last few years starts feeling safer than it actually is.
This is where investment experience can become misleading.
Past resilience can create confidence. Confidence can become expectation. And expectation can become disappointment when returns eventually slow down.
Crude oil is one variable investors cannot simply ignore
Crude oil remains particularly relevant for India because the country is heavily dependent on imported oil.
At the summit, the discussion around oil also highlighted an important distinction: the Indian economy may be able to absorb a significant rise in crude prices, while equity markets can still react negatively in the short term.
That difference is easy to miss.
A stronger economy does not guarantee that every listed company will continue growing earnings at the same pace.
Higher crude prices can affect input costs, inflation, interest rates, corporate margins and consumer spending. The impact will also differ across businesses.
For a diversified mutual fund investor, the consequence is not necessarily that a rise in oil prices means it is time to exit equity funds.
It is that there are too many variables between a market headline and the return that eventually appears in an investor’s portfolio.
Trying to predict each one can become a full-time exercise.
Investors therefore need something more durable than a forecast.
They need to understand how much uncertainty their portfolio can actually absorb.
Earnings may matter more than the headline
The summit discussion also brought the conversation back to corporate earnings.
This is an important shift.
Markets can remain optimistic for long periods. But eventually, prices need businesses to justify them.
If earnings grow strongly, high valuations may become easier to defend. If earnings disappoint, the same valuations can suddenly look uncomfortable.
For mutual fund investors, this matters because equity returns are ultimately connected to the businesses sitting inside their portfolios.
A fund manager may change individual holdings. A sector may move in and out of favour. A particular company may disappoint. But across a diversified equity portfolio, earnings remain an important part of the long-term return equation.
This is also why investors should be careful not to treat a recent return number as an expected future return.
A fund that delivers 20% or 25% over a period does not create an obligation to deliver the same going forward.
The market does not work that way.
India’s mutual fund investor base has become much larger
There is another reason this discussion matters today.
More Indian households are participating in market-linked investments through mutual funds.
AMFI data shows that the mutual fund industry’s assets under management stood at ₹73.73 lakh crore in March 2026, up 12.2% year-on-year. The industry added 33.63 lakh net folios during the month, taking the total folio count to 27.39 crore. Equity mutual funds also recorded positive inflows for the 61st consecutive month, with March inflows of ₹40,450 crore.
That is a significant change in the investing landscape.
Mutual funds are no longer a niche product discussed mainly by financially sophisticated investors. SIPs have become part of household financial planning for many investors.
But wider participation creates another challenge.
A new investor may enter a mutual fund during a period when markets are rising and develop an expectation that equity investing should produce reasonably smooth wealth creation.
The first serious correction can then feel like something has gone wrong with the investment.
It may not have.
The risk was always there.
The problem may simply be that the investor never understood how much risk the chosen scheme carried.
This is where the Riskometer becomes useful
The Mutual Fund Riskometer exists for precisely this reason.
It is a SEBI-mandated visual indicator designed to show the risk level of a mutual fund scheme. The framework uses six categories, ranging from Low to Very High, and is displayed across scheme documents and fund disclosures.
The six levels are:
- Low
- Low to Moderate
- Moderate
- Moderately High
- High
- Very High
The important point is not the colour or the label.
It is what the label forces an investor to ask.
Can I actually live with the volatility attached to this fund?
That question is often missing when investors compare mutual funds.
They look at the three-year return.
Then the five-year return.
Then the fund’s ranking in its category.
Then perhaps the current portfolio.
Risk often comes somewhere at the end.
It should not.
Very High does not mean “bad”
There is an important nuance here.
Under the current framework, most equity funds fall into the Very High Risk category because equity exposure itself carries substantial market risk.
That does not mean a Very High Risk fund is inherently unsuitable.
It means the investor needs to understand what that risk can look like.
A large-cap index fund and a concentrated small-cap or sectoral fund can both carry a Very High Riskometer label while behaving quite differently in real market conditions.
The Riskometer is therefore a starting point, not a substitute for reading the portfolio.
That distinction is particularly relevant when markets are doing well.
A risk label can look abstract when an investor is watching their NAV rise every month.
It becomes much more real when markets fall.
Your SIP does not remove market risk
The popularity of SIPs has also created a subtle misunderstanding.
An SIP can help investors invest regularly instead of trying to guess the perfect entry point. It can also create a disciplined investing habit.
But an SIP does not make the underlying fund less risky.
If an investor is putting ₹20,000 every month into an equity fund, the money is still exposed to the risk of the securities held by that scheme.
What changes is the way the investor enters the market.
The underlying investment risk remains.
This distinction becomes especially important when investors choose funds based on recent performance.
A SIP in a high-risk scheme remains a SIP in a high-risk scheme, even if the investment process feels comfortable because the amount is spread across months.
The real test comes when returns disappoint
Most investors can tolerate risk when they are being rewarded for it.
The difficult part begins when the reward disappears.
Imagine an investor who starts a SIP after watching a fund deliver strong returns for several years.
The investor expects wealth creation to continue at roughly the same pace.
Then the market goes sideways.
The fund delivers a low return.
The next year brings a correction.
Suddenly the investor starts checking the portfolio every week.
A WhatsApp message says the market is going lower.
Someone suggests switching to gold.
Another investor says fixed deposits are safer.
The SIP that looked like a disciplined long-term plan suddenly becomes a source of anxiety.
This is not just a market problem.
It is an investor-behaviour problem.
The right fund is not necessarily the one that produces the highest recent return. It is the one whose risk and behaviour an investor can live with through a full market cycle.
A Riskometer should lead to another five questions
Investors can make the Riskometer more useful by not stopping at the label.
First, what is the investment horizon?
A fund carrying substantial market risk needs time for the investor to absorb periods of poor returns. The risk framework itself should therefore be considered alongside the time available before the money is needed.
Second, what is inside the portfolio?
A fund’s risk does not exist in isolation. Equity exposure, market capitalisation, concentration and the underlying securities all influence how the portfolio can behave. The Riskometer methodology takes several such factors into account.
Third, how concentrated is the portfolio?
A diversified fund and a fund dependent heavily on a few sectors or stocks can respond differently to the same market event.
Fourth, has the risk profile changed?
The Riskometer is reviewed monthly. Portfolio changes, shifts in exposure, credit events, duration changes and other factors can alter the risk level.
And fifth, what will you do if the fund falls sharply?
This may be the most useful question of all.
Not what you hope you will do.
What will you actually do?
The biggest risk may be expecting too much from the market
There is a temptation in a resilient market to believe that the difficult part of investing has already been solved.
India’s economic growth story is strong.
Household financialisation is rising.
Mutual fund participation is expanding.
SIP flows remain substantial.
Corporate earnings can support markets.
All of those can be true.
And equity returns can still be uneven.
That is the part investors need to keep separate.
A positive long-term economic story does not produce a straight-line equity chart.
Markets can spend long periods moving sideways. Individual sectors can underperform. Valuations can compress. Earnings can disappoint. Global events can suddenly matter more than expected.
None of this invalidates long-term equity investing.
It simply makes return expectations more realistic.
So, can mutual fund investors count on returns?
They can count on uncertainty.
They cannot count on a particular return number.
That may sound like an unsatisfying answer, but it is probably a more useful one for investors.
The summit discussion did not offer a neat forecast for equity returns. Instead, it highlighted the variables that investors will have to live with: market valuations, exuberance, crude oil, global developments and corporate earnings.
For a mutual fund investor, the practical response is not to keep changing funds every time one of those variables moves. It is to understand the portfolio being owned.
The Riskometer can help establish the first layer of that understanding. It tells investors the broad risk level assigned to the scheme and is updated periodically as portfolio and market conditions change. But investors still need to look beyond the label.
A fund’s risk, portfolio construction, investment horizon and its own behaviour all matter.
The market may continue to shrug off bad news. It may also surprise investors when it stops doing so.
The sensible expectation from a mutual fund should therefore not be a promised return.
It should be a clear understanding of what the investor owns, what can go wrong, how much volatility can be tolerated and how long the money can stay invested.
That makes for a less exciting investment story. It also makes for a more realistic one.
The Nevesh View Point
A strong market can make investors believe that risk has become smaller. It hasn’t.
What has changed is the investor’s experience of risk.
When markets rise steadily, volatility feels like an abstract concept. Investors become comfortable with equity because their recent experience has rewarded them. That comfort can become dangerous when expectations begin to outrun reality.
The discussion at the Mutual Fund Summit is useful precisely because it does not offer investors a clean return forecast. Oil can surprise. Earnings can surprise. Valuations can change. Global events can change the mood of the market quickly.
For mutual fund investors, the better question is not whether Indian equities will continue to remain resilient. It is whether their portfolio is built for the possibility that they won’t.
The Riskometer cannot answer that question on its own. But it can force investors to start asking it.
And sometimes, that is more valuable than another return projection.
Frequently Asked Questions
Does a resilient Indian stock market mean mutual fund returns will remain high?
Not necessarily. Equity markets can remain resilient while individual sectors, companies and mutual fund schemes deliver very different returns. Future performance depends on several factors, including corporate earnings, valuations, liquidity, interest rates, global developments and commodity prices. A strong economic outlook can support markets over the long term, but it does not guarantee a particular return over a specific period. Investors should therefore avoid treating recent market performance as a fixed expectation for their mutual fund portfolio.
Does the Riskometer tell investors how much return a mutual fund will generate?
No. The Riskometer indicates the level of risk associated with a mutual fund scheme; it does not predict or guarantee returns. It provides investors with a standardised way to understand the broad risk profile of a scheme. A fund with a higher Riskometer level may experience larger fluctuations, but that does not mean it will necessarily deliver higher returns. Investors should consider the Riskometer alongside the scheme’s portfolio, investment strategy, time horizon and other relevant information.
Why are most equity mutual funds classified as Very High Risk?
Under the current Riskometer framework, equity exposure receives a high risk assessment because equity markets can experience significant price fluctuations. As a result, most equity-oriented mutual fund schemes fall into the Very High category. However, funds within the same Riskometer category can behave differently. A diversified large-cap or index-oriented fund and a concentrated small-cap or sectoral fund can have different levels of practical volatility even though both carry the same broad Riskometer label.
Can a mutual fund’s Riskometer change after I invest?
Yes. The Riskometer is evaluated monthly and can change as the portfolio and market conditions change. Changes in asset allocation, credit quality, duration, market capitalisation, concentration and other portfolio characteristics can affect the risk assessment. SEBI’s framework also requires Riskometer changes to be communicated to investors, with relevant disclosures made by mutual fund houses.
Should investors exit an equity mutual fund if the Riskometer says Very High Risk?
Not automatically. Very High Risk is common among equity funds and should be understood in the context of the scheme’s investment strategy and the investor’s own time horizon and ability to tolerate market fluctuations. An investor should not make an exit decision based on the Riskometer label alone. The portfolio, investment objective, financial goal and the investor’s circumstances also need to be considered.
Does an SIP reduce the risk of investing in equity mutual funds?
An SIP creates a regular investment process, but it does not remove the market risk of the underlying mutual fund. If the SIP invests in an equity scheme, the invested money remains exposed to the movements of the securities held by that scheme. The benefit of regular investing should therefore not be confused with protection from losses. Investors still need to select a scheme whose risk profile and investment horizon are compatible with their financial goals.
What should investors look at besides the Riskometer?
The Riskometer should be treated as one part of the evaluation process. Investors can also examine the scheme’s portfolio, asset allocation, concentration, investment strategy, past performance across different market conditions, investment horizon and the risks specific to the securities held by the fund. The Riskometer itself is not designed to replace this broader assessment. SEBI’s framework also recognises that schemes carrying the same Riskometer level may not be identical in nature.
Risk Disclaimer:
Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing. The information presented above is for educational and general informational purposes and should not be construed as investment advice, a recommendation to buy or sell any mutual fund scheme, or a guarantee of returns. Investors should assess their own financial goals, investment horizon and risk tolerance and seek professional advice where appropriate.