Why fixed income funds are regaining importance as 2026 begins

Entering 2026, Indian equity markets present a complex picture marked by uneven returns and rising volatility across mid and small cap segments. While headline indices remain resilient, broader participation has weakened and select pockets continue to trade at elevated valuations. At the same time, inflation is moderate but persistent, interest rates appear close to a bottom, and global growth signals remain fragile.

During 2025, investor attention in the mutual fund space shifted across multiple categories, driven by both opportunity and risk considerations. Sectoral and thematic funds remained widely discussed as investors chased targeted exposure, though volatility and timing challenges kept them under scrutiny. Small cap and mid cap funds stayed in focus due to stretched valuations and uneven performance, while passive funds gained traction amid rising cost awareness