Best Mid Cap Mutual Funds

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What are Midcap Funds

Midcap funds are equity mutual funds, which have to invest at least 65% of their total assets in midcap companies. According to the SEBI regulations, midcap companies are those ranked from 101st to 250th in terms of full market capitalisation.

Why invest in Midcap Funds

Midcap companies have the potential of generating faster earnings growth than large cap companies. These companies usually belong to high growth sectors or have a niche market segment. Midcap companies are also better positioned to derive greater benefit during economic revivals. However, these companies are relatively under-researched with significant gaps between their intrinsic values and market price. Fund managers accurately identifying these gaps can exploit them to generate higher returns than the broader market over a period of time.

Table of Best Midcap Funds:

(Data as on August 20, 2021: Source: Value Research)

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Investment Strategies of Best Midcap Funds

Axis Midcap Fund

• Invests in entrepreneurial & innovative midcap companies with experienced management
• Prefers higher growth companies in established businesses or market leaders in emerging industries
• Follows bottom-up stock selection process emphasizing on the growth potential of stocks from a fundamental perspective
• Has an integrated risk management process for investment

DSP Midcap Fund

• Invests in midcap companies with significant growth potential and consistent earnings
• Prefers stocks with re-rating potential
• Uses business model, reasonable valuation and management quality as stock selection parameters
• Identifies companies that with durable businesses with high sustainable ROEs and able management
• Prefers long holding period for the portfolio constituents to give them enough time to realize their growth potential

Invesco India Midcap Fund

• Uses bottom-up stock approach with a top-down overlay
• Identifies companies with stable business models and wealth creating potential over the long term
• Prefers companies with scalable/niche businesses with strong cash flows, healthy balance sheet, attractive return ratios and credible promoter/management pedigree
• Prefers a reasonably concentrated portfolio with significant deviation from the benchmark
• Makes larger allocation towards growth oriented companies trading at reasonable valuations
• Takes active overweight positions in all the portfolio constituents

Tata Midcap Fund

• Invests in high quality and well managed midcap companies
• Prefers those with above-average growth potential and available at reasonable valuation.
• Uses net worth, strong cash flows, growth consistency, sound professional management, industry scenario, track record, future growth prospects, liquidity of the securities, etc for stock selection.

Nippon India Growth Fund

• Aims to invest in midcap companies having consistent track record and high potential of increased profitability
• Identifies potential market leaders at an early stage to create long term alpha
• Uses Growth at Reasonable Price (GARP) investment style by identifies growth stocks with reasonable valuation
• Focuses on scalable businesses and emerging trends

Kotak Emerging India Equities Fund

• Identifies the hidden growth potential of midcap companies
• Uses bottom-up approach for stock selection
• Prefers stocks priced at a material discount to their intrinsic value, which is a function of both future growth prospects and past performance
• Uses buy and hold strategy
• Guided by one or more of the following considerations during stock selection:
• Financial strength of the companies
• Reputation of the management and track record
• Less prone to cycles or recessions
• With a strategy for building strong brands and capacity for building strong franchises
• Market liquidity of the stock 

L&T Midcap Fund

• Follows a bottom-up approach of stock selection to invest in under-owned and under-research stocks
• Prefers scalable businesses with strong competitive advantage and reasonable valuation
• Invests in companies with potential to grow faster than the broader market and achieve significant size
• Scouts for opportunities arising out of shift from unorganized to organized sector and certain smaller having sectors significantly higher growth than the rest of the economy

Edelweiss Midcap Fund

• Invests in good quality companies after doing in-depth analysis for wealth creation
• Identifies companies with strong product offerings and high growth and earnings potentials
• Aims to benefit from both compounded earnings and valuation re-rating
• Adopts a fundamentals-based long term investing strategy

HDFC Midcap Opportunities Fund

• Invests in mid-cap companies with reasonable growth prospects and sound financial strength
• Prefers those with sustainable business models and acceptable valuation for capital appreciation potential
• Follows bottom-up approach for stock selection

Franklin India Prima Fund

• Follows an active investment strategy with aggressive/defensive postures based on available opportunities
• Uses a blend of growth and value style of investing
• Follow a bottom-up approach for stock-picking across sectors 

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Risks of Investing in Midcap Funds

Being emerging companies, midcap companies carry higher risk than their large cap counterparts. Midcap companies also have lower capacity to deal with changing business cycles and more prone to price volatility. Hence, midcap funds too are relatively more volatile in the short-term. However, they usually beat large cap funds in the long term.

Who Should Invest in Midcap Funds

Investors with higher risk appetite and long term investment horizon should opt for midcap funds. Ideally, investors of midcap funds should stay invested for at least 7 years and above to derive the maximum growth potential from an entire business cycle.

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