Mid-cap mutual funds are attracting attention from investors seeking higher returns, but also acknowledging increased risk. , ETMutualFunds identified five mid-cap funds as top investment options, based on a methodology that prioritizes consistent returns, downside risk management, and asset size – with a minimum threshold of Rs 50 crore in assets under management (AuM).
The ETMutualFunds Shortlist
The funds selected by ETMutualFunds are: Motilal Oswal Midcap Fund Direct-Growth, Axis Midcap Fund, PGIM India Midcap Opportunities Fund, Invesco India Midcap Fund, and Kotak Midcap Fund. The selection process focused on indicate rolling returns, consistency over the past three years, downside risk, outperformance, and asset size.
Motilal Oswal Midcap Fund Direct-Growth stands out with a five-year return of 23.85%, according to ETMutualFunds’ analysis. Axis Midcap Fund, launched in , has delivered a three-year return of 21.5% based on rolling returns, though its performance has recently shifted from the fourth to the third quartile over the last nine months. PGIM India Midcap Opportunities Fund, established in , has achieved a three-year rolling return of approximately 26.4%, but has remained in the fourth quartile for the preceding 22 months. Invesco India Midcap Fund, originating in , has offered a three-year rolling return of around 24.5% and has recently improved its ranking, moving from the second to the first quartile in the last nine months. Kotak Midcap Fund, launched in , has generated a three-year return of approximately 24%, and currently resides in the second quartile after a five-month period.
Defining the Mid-Cap Space
Mid-cap funds, as defined by Moneycontrol, invest in companies ranked between 100 and 250 by market capitalization. This places them between large-cap companies (typically the top 100) and small-cap companies (below 250). These funds are generally considered suitable for investors with a time horizon of at least three to four years, who are seeking potentially high returns but are prepared to accept moderate levels of risk.
Market Context and Investor Sentiment
The interest in mid-cap funds comes amid a broader rally in mid-cap stocks. According to data from , mid-cap funds offered an average return of 32.23% in 2023. However, this strong performance has also led to some investor anxiety about valuations, as highlighted in a report from the Economic Times. The recent gains raise concerns about whether these funds can sustain their momentum.
Risks and Considerations
Investing in mid-cap companies carries inherent risks. These companies, while possessing growth potential, are often more vulnerable to market fluctuations and economic downturns than their larger, more established counterparts. Corporate governance is also a key concern, as mid-cap and small-cap companies may be more susceptible to issues related to management integrity and transparency. Investors are advised to have a high risk tolerance and a long-term investment horizon – ideally seven to ten years – to navigate potential volatility.
Asset Size and Fund Performance
The size of a fund, as measured by its AuM, can also be an important factor. As of , the ICICI Prudential MidCap Fund – Direct Plan – Growth had an AuM of Rs 6,969.01 crore. Larger funds may offer greater stability, while smaller funds may have more flexibility to pursue growth opportunities. However, excessively large funds can sometimes struggle to maintain performance as their size limits their investment options.
The Importance of Due Diligence
Investors considering mid-cap funds should conduct thorough due diligence, carefully evaluating the fund’s investment strategy, expense ratio, and historical performance. Understanding the fund manager’s approach and the underlying portfolio holdings is crucial. It’s also important to consider one’s own risk tolerance and investment goals before making any decisions. The ETMutualFunds shortlist provides a starting point for research, but investors should not rely solely on rankings and should conduct their own independent analysis.
Looking Ahead
While valuations in the mid-cap space have increased, experts suggest that investors should proceed with caution and maintain a long-term perspective. Regular investments, rather than attempting to time the market, are generally recommended. Investors should be prepared for potential volatility and short-term losses, recognizing that mid-cap investing is a long-term game. The funds identified by ETMutualFunds represent options for those willing to accept the associated risks in pursuit of potentially higher returns.
