"I've saved well in dirhams. Now I want my money to grow faster than inflation and currency depreciation combined."
If that sounds like you, welcome to a conversation we have daily at Belong with NRIs who've built stable savings but now want to chase wealth creation. You're not reckless. You understand risk. You simply want your money working harder than a 5-6% FD return.
The challenge? Finding funds that deliver 20%+ returns without getting burned by volatility, taxation, or regulatory surprises.
And as an NRI, you face additional hurdles. TDS deductions, restricted fund houses, and the constant question of whether GIFT City offers a better route.
This guide ranks the best high-risk, high-return mutual funds by their 5-year CAGR (Compound Annual Growth Rate).
No opinions. Just performance data from Value Research, Groww, and official AMC disclosures. We'll also cover what "high risk" actually means in numbers, NRI taxation rules after July 2024, and a tax-free alternative most investors overlook.
What Does "High Risk" Actually Mean?
Before chasing 30% returns, understand what you're signing up for.
High-risk mutual funds typically invest in smaller companies, concentrated sectors, or emerging themes. These stocks can double in value. They can also crash 40-50% during market corrections.
Here's how risk levels compare:
Risk Level | Fund Category | Typical 5Y Returns | Max Drawdown |
|---|---|---|---|
Low | Large Cap, Debt | 10-14% | 15-20% |
Moderate | Balanced Advantage, Multi-Asset | 14-18% | 20-25% |
High | Mid Cap, Flexi Cap | 20-28% | 30-40% |
Very High | Small Cap, Sectoral | 25-33% | 40-60% |
Source: Value Research, Groww
The "max drawdown" column shows how much these funds fell during their worst period. A 40-60% drawdown means if you invested ₹10 lakh, you might have seen it drop to ₹4-6 lakh at some point before recovering.
👉 Tip: Only invest money you won't need for 7+ years. High-risk funds recover from crashes, but they need time. Selling during a downturn locks in losses.
Who Should Consider High-Risk Funds?
High-risk mutual funds aren't for everyone. They suit investors who:
Have a long time horizon. You're 35-45, planning for retirement 15-20 years away. Short-term volatility won't affect your goals.
Already have a safety net. You've built an emergency fund covering 6-12 months of expenses. Your core savings sit in stable products like NRE fixed deposits or debt funds.
Can stomach 30-40% drops without panic selling. This is psychological, not financial. If watching your portfolio drop ₹30 lakh in a month would make you sell everything, high-risk funds aren't for you.
Want growth, not income. These funds don't pay regular dividends. Returns come from capital appreciation over years.
At Belong, we recommend high-risk funds as the growth layer in a diversified portfolio, typically 20-30% of your total investments. The rest should sit in safer options.
Small Cap Funds: The Highest Returns (and Highest Risk)
Small cap funds invest in companies ranked 251st and beyond by market capitalisation. These are young, fast-growing businesses. Many will fail. The winners can deliver 10x returns.
Top Small Cap Funds Ranked by 5-Year Returns
Fund Name | 5Y CAGR | 3Y CAGR | AUM (₹ Cr) | Expense Ratio |
|---|---|---|---|---|
Quant Small Cap Fund | 31.94% | 19.5% | 30,504 | 0.75% |
Invesco India Smallcap Fund | 28.93% | 26.98% | 5,860 | 0.40% |
Bandhan Small Cap Fund | 27.62% | 30.60% | 18,174 | 0.40% |
Nippon India Small Cap Fund | 28.46% | 22.1% | 68,572 | 1.39% |
Tata Small Cap Fund | ~28% | 19.22% | 9,236 | 0.33% |
Data as of December 2025. Source: Value Research, INDmoney, Groww
Quant Small Cap Fund leads with 31.94% five-year returns. The fund uses a quantitative VLRT framework (Valuation, Liquidity, Risk, Time) to pick stocks. However, it's known for high volatility. Aggressive investors who tolerate sharp swings may find it rewarding.
Nippon India Small Cap Fund offers the largest AUM at ₹68,572 crores. The bigger fund size provides better liquidity. This matters when markets crash. You can exit without significant price impact. The higher expense ratio (1.39%) reflects active management costs.
Bandhan Small Cap Fund delivers the strongest 3-year returns (30.60%) with the lowest expense ratio (0.40%). The fund follows a GARP strategy (Growth at Reasonable Prices), keeping its top 10 holdings under 30% of the portfolio for risk distribution.
👉 Tip: Small cap funds can fall 40-50% during bear markets. If you're investing a lump sum, consider SIP vs lump sum strategies to average your entry price.
Mid Cap Funds: High Growth with Slightly Lower Volatility
Mid cap funds invest in companies ranked 101-250 by market capitalisation. These businesses have survived the startup phase but still have significant growth runway. Think of them as small caps with a track record.
Top Mid Cap Funds Ranked by 5-Year Returns
Fund Name | 5Y CAGR | 3Y CAGR | AUM (₹ Cr) | Expense Ratio |
|---|---|---|---|---|
Quant Mid Cap Fund | 32.10% | 24.8% | 8,891 | 0.59% |
Motilal Oswal Midcap Fund | 30.52% | 27.34% | 22,890 | 0.57% |
Edelweiss Mid Cap Fund | 28.10% | 27.86% | 8,270 | 0.43% |
HDFC Mid Cap Fund | 27.44% | 27.12% | 91,041 | 0.75% |
Mahindra Manulife Mid Cap Fund | 26.72% | 26.28% | 4,697 | 0.46% |
Data as of December 2025. Source: Groww, Angel One
Quant Mid Cap Fund delivers the highest 5-year returns at 32.10%. Like its small cap sibling, it uses quantitative models for stock selection. The fund manager has flexibility to take concentrated bets.
HDFC Mid Cap Fund manages the largest AUM (₹91,041 crores) in this category. The fund has delivered consistent 27%+ returns across multiple market cycles. Its size provides stability during redemption pressures.
Edelweiss Mid Cap Fund offers the lowest expense ratio (0.43%) with strong 28.10% five-year returns. Lower fees mean more of your returns stay in your pocket.
Mid caps historically fall 30-40% during corrections but recover faster than small caps. They're a better fit if you want high growth with slightly less stomach-churning volatility.
Sectoral and Thematic Funds: Concentrated Bets on India's Growth Stories
Sectoral funds invest 80%+ in a single industry. When that sector booms, returns explode. When it crashes, losses pile up fast.
These funds require you to have a view on which sectors will outperform. Get it right, and you beat every diversified fund. Get it wrong, and you underperform for years.
Top Sectoral Funds Ranked by 5-Year Returns
Fund Name | 5Y CAGR | 3Y CAGR | Sector Focus |
|---|---|---|---|
Quant Infrastructure Fund | 33.00% | 20.92% | Infrastructure |
SBI Healthcare Opportunities Fund | 33.46% | 28.61% | Pharma & Healthcare |
ICICI Pru Commodities Fund | 30.27% | 22.5% | Commodities |
Aditya Birla SL PSU Equity Fund | 29.22% | 29.22% | PSU Stocks |
ICICI Pru Technology Fund | ~28% | 24.15% | Technology |
Data as of December 2025. Source: Equitymaster, Angel One
Why Infrastructure is Winning
India's government committed ₹10 lakh crore+ annually to infrastructure spending. Roads, railways, power, and logistics companies are direct beneficiaries. The Franklin Build India Fund and Quant Infrastructure Fund both captured this growth story.
Pharma's Comeback
Healthcare funds suffered after COVID as the sector cooled from 2020's highs. But long-term demographics favour pharma. An ageing population, rising healthcare spending, and API manufacturing growth support the sector thesis.
Technology Funds
IT funds struggled in 2023-24 as global tech spending slowed. But AI adoption and digital transformation are driving renewed demand. If you believe India's IT sector will benefit from this wave, technology mutual funds offer concentrated exposure.
👉 Tip: Never put more than 10-15% of your portfolio in sectoral funds. They're meant to supplement your core holdings, not replace them.
Flexi Cap Funds: High Returns with Built-in Diversification
If you want high returns without betting on a single market cap segment, flexi cap funds offer flexibility. Fund managers can shift between large, mid, and small caps based on market conditions.
Top Flexi Cap Funds Ranked by 5-Year Returns
Fund Name | 5Y CAGR | 3Y CAGR | AUM (₹ Cr) | Expense Ratio |
|---|---|---|---|---|
ICICI Prudential Retirement Fund | 25.66% | 24.98% | 8,420 | 0.86% |
HDFC Flexi Cap Fund | 22.17% | 22.65% | 66,344 | 0.79% |
Parag Parikh Flexi Cap Fund | 20.99% | 21.94% | 82,000+ | 0.63% |
Franklin India Flexi Cap Fund | 20.84% | 17.69% | 17,947 | 0.92% |
JM Flexicap Fund | ~22% | 21.5% | 5,860 | 0.48% |
Data as of December 2025. Source: Groww, Angel One
Parag Parikh Flexi Cap Fund stands out for its global diversification. The fund holds US stocks like Alphabet and Amazon alongside Indian equities. This international exposure provides currency hedging and access to global growth.
HDFC Flexi Cap Fund has delivered consistent returns with the second-largest AUM in the category. The fund manager can aggressively shift to small caps during bull markets and retreat to large caps during downturns.
Flexi cap funds typically deliver 20-25% returns over five years. Lower than pure small caps, but with significantly less volatility.
How NRIs Get Taxed on High-Risk Mutual Fund Returns
Understanding taxation is critical. After the July 2024 budget changes, NRI mutual fund taxation works as follows:
Equity-Oriented Funds (65%+ in Indian Equities)
Holding Period | Tax Rate | TDS Deducted |
|---|---|---|
Less than 12 months (STCG) | 20% | Yes, at source |
More than 12 months (LTCG) | 12.5% | Yes, at source |
Source: Income Tax Act, DBS Treasures
Key points for NRIs:
LTCG exemption threshold is ₹1.25 lakh per financial year. Gains below this amount are tax-free. Above ₹1.25 lakh, you pay 12.5%.
TDS is deducted at redemption. Unlike resident Indians, NRIs cannot escape TDS. The AMC deducts tax before crediting your bank account.
DTAA benefits apply. If you're in the UAE, India-UAE DTAA ensures you don't pay tax twice. Since UAE has no capital gains tax, you only pay Indian tax. Claim DTAA benefits by filing your Indian ITR with a Tax Residency Certificate.
👉 Tip: Split redemptions across financial years to use the ₹1.25 lakh LTCG exemption multiple times. Redeeming ₹25 lakh in one year means one exemption. Redeeming ₹12.5 lakh across two years means two exemptions.
The Tax-Free Alternative: GIFT City Funds
What if you could invest in Indian equity mutual funds with zero capital gains tax?
GIFT City offers exactly this for NRIs in zero-tax jurisdictions like the UAE.
How GIFT City Funds Work
GIFT City (Gujarat International Finance Tec-City) operates as India's International Financial Services Centre. Funds registered here fall under Section 10(4D) of the Income Tax Act, which exempts capital gains from Indian taxation.
For UAE-based NRIs, this creates a unique situation:
Factor | Regular Indian Mutual Fund | GIFT City Mutual Fund |
|---|---|---|
Tax in India | 12.5% LTCG / 20% STCG | 0% |
Tax in UAE | 0% | 0% |
TDS Deducted | Yes | No |
Net Tax | 12.5-20% | 0% |
Source: Belong GIFT City Guide
Available GIFT City Options for High-Risk Investors
Tata India Dynamic Equity Fund (GIFT IFSC) launched in September 2025 with just $500 minimum investment. The fund invests in Indian mutual fund schemes and ETFs, providing equity exposure with GIFT City tax benefits.
Category III AIFs offer more aggressive strategies but require $75,000-$150,000 minimum investment. These funds can invest in derivatives, structured products, and complex strategies.
Explore options using Belong's GIFT City Mutual Funds Explorer.
The Math: Tax Savings Over 10 Years
Assume you invest ₹50 lakh in small cap funds generating 25% annual returns.
Scenario | Total Corpus After 10Y | Tax Paid | Net Corpus |
|---|---|---|---|
Regular Indian MF | ₹4.66 Cr | ~₹52 lakh | ₹4.14 Cr |
GIFT City Fund | ₹4.66 Cr | ₹0 | ₹4.66 Cr |
Difference: ₹52 lakh extra in GIFT City structure
The tax savings compound over time. That ₹52 lakh could grow to ₹1.5+ crore over another decade.
Building a High-Risk Portfolio: Allocation Examples
Aggressive Growth Portfolio (Age 30-40, 15+ year horizon)
Category | Allocation | Example Funds |
|---|---|---|
Small Cap | 40% | Quant Small Cap, Nippon India Small Cap |
Mid Cap | 30% | HDFC Mid Cap, Edelweiss Mid Cap |
Sectoral | 20% | Quant Infrastructure, SBI Healthcare |
Flexi Cap | 10% | Parag Parikh Flexi Cap |
Expected returns: 22-28% CAGR. Risk: Very High.
Balanced High-Risk Portfolio (Age 40-50, 10-15 year horizon)
Category | Allocation | Example Funds |
|---|---|---|
Flexi Cap | 40% | HDFC Flexi Cap, Parag Parikh |
Mid Cap | 30% | Motilal Oswal Midcap |
Small Cap | 20% | Bandhan Small Cap |
Large Cap | 10% |
Expected returns: 18-22% CAGR. Risk: High.
Common Mistakes High-Risk Investors Make
Selling during corrections. Small cap funds fell 40%+ in 2020 and 2022. Investors who sold locked in losses. Those who held saw their investments double within 2-3 years.
Chasing last year's winner. The best fund in 2024 won't necessarily be the best in 2025. Look at 5-7 year consistency, not 1-year returns.
Ignoring expense ratios. A 1% difference in expense ratio costs ₹1 lakh annually on a ₹1 crore investment. Compare funds with similar returns and choose lower costs.
Over-allocating to sectoral funds. Putting 50% in infrastructure because it's "hot" is speculation, not investing. Keep sectoral bets under 15% of your portfolio.
Not using GIFT City options. UAE-based NRIs leaving 12.5-20% of returns on the table by ignoring GIFT City alternatives are making an expensive mistake.
How to Start Investing in High-Risk Funds as an NRI
Step 1: Complete KYC
You'll need PAN card, passport, UAE residence visa, and address proof. Most AMCs accept video KYC. Learn about mutual fund KYC for NRIs.
Step 2: Open NRE/NRO Account
NRE accounts allow full repatriation. NRO accounts suit income earned in India. Choose based on whether you'll bring money back to the UAE.
Step 3: Choose Investment Mode
SIP (Systematic Investment Plan) averages your purchase price across market cycles. Start with ₹5,000-10,000 monthly and increase as you build confidence.
Lump sum works if you have a large sum to deploy and can stomach short-term volatility. Consider splitting into 6-12 monthly investments.
Step 4: Select Direct Plans
Direct plans have lower expense ratios than regular plans. The savings compound to significant amounts over 10-20 years.
Step 5: Monitor Quarterly, Rebalance Annually
High-risk funds don't need daily tracking. Check quarterly to ensure the fund isn't drifting from its strategy. Rebalance annually to maintain your target allocation.
What Should You Do Next?
High-risk mutual funds can transform your wealth if you invest wisely and stay patient.
Compare small cap funds using our NRI FD Comparison Tool to understand the risk-return trade-off against safer options.
Explore tax-free GIFT City alternatives through Belong's Mutual Funds Explorer.
If you're serious about building wealth in India, join our WhatsApp community where NRIs discuss investment strategies, taxation, and GIFT City opportunities daily.
Download the Belong app to access USD fixed deposits, GIFT City investments, and tools built specifically for NRIs.
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