Summary of this article
Downside matters: Deeper falls need much higher returns to recover.
Method used: Funds shortlisted using low down-capture ratios and past market crashes.
Key takeaway: Some equity funds have historically fallen less than the market.
If you invested in a stock priced at Rs 100 and it fell 25 per cent to Rs 75, it would need to rise 33.33 per cent just to get back to its original value of Rs 100. If the stock fell 50 per cent from Rs 100 to Rs 50, it would need to generate a much higher return of 100 per cent to recover to the original level. This simple math highlights why downside protection matters so much for investors. The deeper the fall, the harder the climb back.
This is why downside protection becomes a crucial metric while selecting equity mutual funds. Funds that fall less during market declines may help investors preserve capital and recover faster when markets turn favourable.
At Outlook Money, we analysed actively-managed equity mutual fund schemes that have historically shown stronger downside protection. For this analysis, we looked at the down-capture ratio of equity funds across multiple categories, namely, large-cap, mid-cap, small-cap, large & mid-cap, multi-cap, flexi-cap, contra, dividend yield, value, and focused funds.
We considered schemes with a minimum assets under management (AUM) of Rs 1,000 crore and those that existed in the year 2020. We filtered schemes that had their three-year and five-year down capture ratios of less than 80.
Down capture ratio shows how much a fund falls when the benchmark declines. A down-capture ratio of 80 means that if the benchmark falls 10 per cent, the fund falls only 8 per cent. The lower the down capture ratio, the better the fund has historically protected investors on the downside. A ratio below 100 indicates that the fund has fallen less than the benchmark during market downturns.
After applying this filter, several schemes qualified. To further strengthen the analysis, we then compared the returns of the shortlisted schemes with market performance during the COVID-19 market crash. Schemes that fell less than the broader market during this period were retained, while those that declined more than the benchmark were filtered out. Broader index Nifty 500 TRI fell by 29 per cent during January 2020 to March 2020. Nifty Smallcap TRI fell by 34.56 per cent, Nifty 100-TRI fell by 28.86 per cent, and Nifty Midcap 150-TRI by 27.80 per cent during the same time period.
The final list of 18 schemes that qualified our criteria of lower down-capture ratio and falling less than the markets during the Covid-19 crash is presented in the table below.
| Scheme Name | AUM (Rs crore) | Returns during Covid Crash (%) | 3-Year Down Capture Ratio | 5-Year Down Capture Ratio |
| Parag Parikh Flexi Cap Fund | 129,783 | -22.65 | 20.49 | 44.40 |
| HDFC Mid Cap Fund | 92,169 | -25.53 | 75.73 | 78.74 |
| ICICI Pru Large Cap Fund | 78,160 | -28.40 | 71.44 | 78.49 |
| Nippon India Small Cap Fund | 68,572 | -30.93 | 73.62 | 70.42 |
| SBI Contra Fund | 49,838 | -27.44 | 69.65 | 66.07 |
| SBI Focused Fund | 42,773 | -21.56 | 51.41 | 64.57 |
| SBI Small Cap Fund | 36,272 | -25.04 | 76.16 | 65.55 |
| ICICI Pru Large & Mid Cap Fund | 26,939 | -28.57 | 64.87 | 73.91 |
| Axis Small Cap Fund | 26,769 | -21.16 | 67.24 | 59.73 |
| Kotak Small Cap Fund | 17,423 | -28.20 | 76.62 | 70.18 |
| Franklin India Small Cap Fund | 13,529 | -30.48 | 75.02 | 74.06 |
| Canara Rob Small Cap Fund | 13,060 | -22.73 | 79.48 | 73.39 |
| Tata Small Cap Fund | 11,410 | -27.07 | 76.86 | 67.73 |
| ICICI Pru Smallcap Fund | 8,452 | -30.09 | 65.30 | 61.68 |
| Edelweiss Small Cap Fund | 5,330 | -25.92 | 72.23 | 69.79 |
| UTI Dividend Yield Fund | 3,936 | -24.55 | 70.35 | 78.45 |
| Sundaram Small Cap Fund | 3,450 | -30.89 | 71.60 | 72.40 |
| Franklin India Dividend Yield Fund | 2,384 | -28.51 | 60.42 | 55.00 |
| Schemes in the table are shown in descending order of their size, AUM as on November 31, 2025, Down Capture Ratio as on December 24, 2025; Source: Ace MF |
Our analysis shows that 31 schemes have a down capture ratio of 80 or less over a three-year period, while 26 equity mutual fund schemes have a down capture ratio below 80 over a five-year period. There are 21 schemes that are common across both periods, meaning they have maintained a down-capture ratio of less than 80 per cent in both three- and five-year time frames.
When we checked how these 21 schemes performed during the COVID market crash, three schemes moved out of the list as they fell more than their respective benchmarks.
It is important to understand that the down capture ratio only suggests relative downside protection. A fund with a lower down-capture ratio does not necessarily carry lower risk. For instance, a small-cap fund will still carry the inherent risks associated with small-cap investing. However, comparatively, these schemes have historically fallen less than their peers and benchmarks during market declines.
Investors should not make investment decisions solely based on this study. To identify consistently good-performing mutual funds, the down capture ratio is just one of several factors that must be considered. Investors should conduct their own research or seek guidance from a qualified financial advisor. This analysis is for educational purposes only.
