Contents Summary
Introduction of Mid-cap Mutual Funds
Mid-Cap Funds are a class of equity mutual funds that invest at least 65% of their total assets in mid-cap companies. Mid-Cap Mutual Funds aim at generating benchmark beating returns by investing in equity and equity-related securities of mid-cap companies. As per SEBI, mid-cap companies rank from 101-250 in terms of market capitalization. To be clear, these companies have a market capitalization in the range of Rs. 5,000 crore to Rs. 20,000 crore. They have higher growth potential than Large-cap companies and are less risky than Small cap companies.
Why Invest in Mid-cap mutual funds
Mid-Cap companies have the potential to generate returns growth faster than Large Cap companies as they belong to high-growth sectors. These companies have a specific market segment and are also better positioned to gain better economic revivals. Although, these companies are less searched due to the gaps between their value and market price. Expert fund managers identify these gaps and expose these companies to generate good returns. The size of the company is a crucial factor to be considered while investing in equity-linked instruments. This is due to the risk factors and opportunities that predominantly depend on the size of the company. Mid-cap companies have the potential to beat the benchmark and large-cap funds when the markets are bullish.
Best Mid Cap Mutual Fund and their strategies
Since the last 1-year mid-cap funds have really performed well and have outperformed best performing large-cap funds, as some mid-cap funds have generated over 50% to 100.20% of returns. By considering this, we have compiled here 6 best-performing equity mid-cap mutual funds in India, 2021.
Axis Mid-Cap Mutual Fund
Axis Mutual Fund started this fund in July 2013. It has delivered decent returns of 63.25% in the last 1 year with an average return of 20.75% per year since its inception. The fund has an asset allocation across the Financial, Chemicals, Technology, Consumer Durables, and Services sectors. Cholamandalam Investment & Finance Co. Ltd, Voltas Ltd, Astral Poly Technik Ltd, PI Industries Ltd, and NIIT Technologies Ltd are the top five holdings of this fund. The expense ratio is 0.52%, which is significantly lower than other funds in the same category. The NAV is Rs. 68.55 as of July 2021, and currently has an Asset Under Management (AUM) of Rs 11,834 Cr. One can start a SIP with a minimum monthly investment of only Rs. 500 in this fund.
Strategy
1. The fund invests in entrepreneurial & innovative mid-cap companies with experienced management.
2. Prefers companies having higher growth established businesses or market leaders in emerging industries.
3. Follows bottom-up stock selection process depending on the growth potential of stocks from a fundamental perspective.
PGIM India Mid-Cap Opportunities Fund
This fund was launched in November 2013 by PGIM Mutual Fund. Last year, PGIM India Mid Cap Opportunities Fund Direct-Growth had returns of 100.20% with having an average return of 20.17% per year. The financial, engineering, services, chemicals, and technology sectors are in majority of the fund’s asset allocation. ICICI Bank Ltd, NIIT Technologies Ltd, MindTree Ltd, Aarti Industries Ltd, and Federal Bank Ltd are the top five holdings of this fund. The fund has an expense ratio of 0.41%, which is reasonable compared to other mid-cap funds. As of July 2021, the fund NAV is Rs. 40.38 and has an Asset Under Management(AUM) of Rs. 1,615 Crore. One can start SIP in this fund with a minimum monthly investment of Rs. 1000.
Strategy
The investment objective of the fund is to seek and achieve long-term capital appreciation by predominantly investing in equity & equity-related instruments of mid-cap companies.
Invesco India Mid-Cap Mutual Fund
Invesco India Mid Cap Fund Direct-Growth is a Mid Cap mutual fund scheme from Invesco Mutual Fund. This fund has been in existence for over 8 years since launched in January 2013. The fund Direct-Growth has Rs. 1,861 Crores worth of Assets Under Management (AUM) as of June 2021 and considered as a medium-sized fund. The fund has an expense ratio of 0.79%, which is close to most other Mid Cap funds charges. Invesco India Mid Cap Fund Direct-Growth returns were 60.60% last year.
Since its launch, it has delivered 21.25% of average annual returns. The fund has doubled the money invested in it every 2 years and the majority of investments are in Engineering, Automobile, Financial, Healthcare, Chemicals sectors. Invesco India Mid Cap Fund Direct-Growth scheme has the ability to deliver returns consistently in line with most funds of its category and also control losses averagely in a falling market. Endurance Technologies Ltd, Mphasis Ltd, Bharat Electronics Ltd, Vinati Organics Ltd, Gujarat Gas Ltd are the top 5 holdings of this fund.
Strategy
1. Uses bottom-up stock approach with a top-down overlay.
2. Identifies companies with stable business models and wealth-creating potential over the long term.
3. Choose companies with scalable/niche businesses with strong cash flows, a healthy balance sheet, attractive return ratios, and credible promoter/management.
4. Makes larger allocation towards growth-oriented companies trading at reasonable valuations.
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Nippon India Growth Fund
Nippon India Growth Fund is an Open-ended Mid Cap Equity scheme. It has launched in Oct 1995 by Nippon India Mutual Fund House. The asset allocation of the fund comprises around 96.97% in equities, 0.0% in debts, and 3.03% in cash & cash equivalents. While the top 10 equity holdings constitute around 30.14% of the assets, the top 3 sectors constitute around 44.53% of the assets. The fund largely follows a mixed style of investment by investing across market capitalizations like 16.96% in giant and large-cap companies, 68.93% in mid-cap, and 14.11% in small-cap companies.
Strategy
1. Focuses to invest in mid-cap companies having a consistent track record and a high potential for increased profitability.
2. Identifies potential market leaders at an early stage to create long-term scope.
3. Uses Growth at Reasonable Price (GARP) investment style by identifying growth stocks with a reasonable valuation.
4. Focuses on scalable businesses and emerging trends.
DSP Mid-Cap Mutual Fund
DSP mid-Cap Fund has 96.14% investment in Indian stocks of which 11.05% is in large-cap stocks, 63.98% is in mid-cap stocks, 14.1% in small-cap stocks. For investors who are willing to invest money for at least 3-4 years and looking for high returns, DSP Mid Cap Fund should be a nice choice.
Strategy
1. Invests in mid-cap companies having good growth potential and consistent earnings.
2. Prefers stocks with re-rating potential.
3. Uses stock selection parameters like business model, reasonable valuation, and management quality.
4. Prefers a long holding period for the portfolio constituents to give enough time to realize their growth potential.
Kotak Emerging Equity Fund Direct-Growth
This mid-cap fund was launched by Kotak Mutual Fund in January 2013. The 1-year returns for Kotak Emerging Equity Fund Direct-Growth are 81.42% with an average return of 21.28% per year since launch. The fund has an expense ratio of 0.61% with assets allocated across the Chemicals, Engineering, Financial, Construction, and Healthcare sectors. Supreme Industries Ltd, Coromandel International Ltd, Persistent Systems Ltd, The Ramco Cements Ltd, and FAG Bearings India Ltd are the top 5 holdings of this fund. Currently, the fund has an Asset Under Management(AUM) of Rs. 12,463 Crore and the NAV is Rs. 72.56 as of July 2021. One can start SIP in this fund with a minimum investment of Rs. 1000/month.
Strategy
1. Identifies the hidden growth potential of mid-cap companies.
2. Uses a bottom-up approach for stock selection.
3. Uses buy and hold strategy.
4. Follows strict considerations during stock selection like financial strength of companies, reputation and track record of management, market liquidity of stocks.
Who should invest in mid Cap Funds
Investors willing to gain wealth faster by accepting to take some risk can invest in mid-cap funds. Mid-cap companies are capable of providing higher returns but they are also riskier than Large-cap funds. Investors should need to be prepared to face the volatility that comes with these stocks in expectations of excellent returns.
Taxability
Since mid-cap funds are a class of equity funds, they are taxed like any other equity fund as well. The dividends are now taxed in the hands of investors at their respective income tax slab rates. This rule of taxation of dividends was introduced in Budget 2020. This is a classical way of taxing dividends.
Short-term capital gains apply to redeeming mid-cap units within a holding period of one year. These gains are taxed at a rate of 15% irrespective of the income tax slab of the investors. Long-term capital gains are applicable on selling your mid-cap units after a holding period of one year. These gains of up to Rs. 1 lakh a year are made tax-free. Any gains exceeding this limit attract a tax at the rate of 10%.
Advantages of mid cap funds
Mid-cap funds have generally outperformed large-cap funds when the markets are good. The nature of the mid-cap funds makes it favorable to continue for quite some time. The mid-cap funds are relatively underfollowed in stock markets as compared to large-cap funds but, these funds provide investors with an excellent opportunity for faster growth of their capital by investing.
Note
According to the experts, mid-cap funds have the potential to deliver double-digit returns, as the prevailing best performing mid-cap companies may grow to large-cap in the future. Though mid-cap funds perform very well in a bullish market, their value may go down as the market price drops. Mid-cap stocks can be affected by the liquidity constraints due to their smaller capital base.