Here is a list of Top 5 Midcap Mutual Funds to invest in 2018 -19
Mid-cap funds are mutual fund schemes which invest in shares of companies that have been ranked between 101st -250th in terms of market capitalization. Mid-cap companies usually have an approximate market capitalization between Rs.5000 – Rs.20000 Crores.
Mid-cap mutual fund schemes are mandated to hold at least 65% of their assets in mid-cap stocks. Mid-cap funds carry a higher risk than the large-cap stocks but have a higher potential to fetch better returns than large-cap funds.
These funds are suitable for investors who don’t mind taking additional risk to get higher returns over the long-term. The mid-cap segment is very lucrative for investors as a mid-cap company may potentially grow to be a large-cap or it may be taken over by a large-cap company, thus increasing its share prices.
Mid-cap funds usually outperform during a bull market and are hit hard during a bear market. Depending on your risk profile, you can take exposure to mid-cap funds and hold it for long-term goals.
It is important to note that though mid-cap funds are riskier and perform better than large-cap funds, both the risk and return of mid-cap funds are less as compared to small-cap funds.
Funds under this category follow either S&P BSE Midcap or Nifty Midcap 50 indices as a benchmark.
Top 5 Mid-cap Funds for 2018-19
To choose the top 5 mid-cap funds, we have applied several criteria consisting of quantitative factors, qualitative factors, asset allocation etc. Apart from these, we have also considered the below factors:
- Only regular plans have been considered for analysis.
- Only those funds which are categorized as mid-cap funds and align to the Mid-cap indices have been considered.
- Funds which invest predominantly in mid-cap stocks but follow either value-investing or contra-investing strategies have not been considered. This is because SEBI mandates that there should be separate mutual fund schemes which follow such strategy.
- Solution-oriented funds such as Retirement Funds and Children’s Funds which come with a lock-in period have not been considered.
- Funds categorized as Multi-cap Funds and Large & Mid-cap funds have not been considered even if their investment strategy is oriented towards mid-cap.
The other criteria applied are as follows:
- Returns of the scheme over a long-term of at least five years. A fund which has consistently performed over a long-term and has held steady during a bear market is given higher weightage.
- Stability of the fund house over a long-term is equally important. An unstable fund house or a fund house on sale isn’t the best bet even if a scheme is doing extremely well.
- Qualitative factors like asset allocation and investment philosophy of the scheme.
- Quantitative factors like expense ratio, standard deviation, Sharpe Ratio, Sortino Ratio, Beta, and standard Deviation indicates how volatile the returns of a fund is. Beta is a measure of how volatile a fund is as compared to the market. Higher the beta, higher is the risk of the fund.Sharpe Ratio indicates how much returns can a fund generate for every additional unit of risk taken. Sortino Ratio is a measure of risk-adjusted returns of a scheme. Alpha indicates how much excess returns a fund has been able to generate for every unit of risk taken.
The funds listed above are not in hierarchical order. You have to choose a fund that is suitable for you based on your risk profile and suggested asset allocation for your portfolio.
Also read: Best Balanced Funds for 2017
Let us analyze the chosen funds from different perspectives.
Over a 10-year time frame, HDFC Mid-Cap Opportunities Fund and Canara Robeco Emerging Equities Fund have given excellent returns exceeding the category average of 14.57%. Both these funds have been around for more than ten years and have endured multiple bear markets.
Over a 5-year time frame, Canara Robeco Emerging Equities Fund and L&T Midcap Fund have given high returns at 31.21% and 30.7% respectively, which is above the category return of 25.05% during the same period.
L&T Midcap Fund and Canara Robeco Emerging Equities Fund, are the best performers from the last three years.
Among the top 5, HDFC Mid-Cap Opportunities Fund and L&T Midcap Fund have the lowest expense ratios. It indicates that your return will be higher amount will be invested.
The risk of a mutual fund scheme is measured by standard deviation and various financial ratios such as beta, Sharpe ratio, Sortino Ratio etc. Let us analyze the top 5 funds from the risk perspective.
Canara Robeco Emerging Equities Fund has a high SD of 17.96 indicating the returns of the fund can be 17.96% more or 17.96% less than the historical average return of the fund. This means that of the five funds chosen, this is the most volatile one.
HDFC Mid-Cap Opportunities Fund has a low SD of 14.89 and is less volatile as compared to other funds.
Canara Robeco Emerging Equities Fund has the highest beta among the top 5 funds. The risk of this fund is higher than the market risk and one of the highest in its category.
You can choose this if you risk appetite is higher.
HDFC Mid-Cap Opportunities Fund has the lowest beta among the top 5 funds at 0.92. This carries the least risk as compared to other funds.
L&T Midcap Fund has a high Sharpe ratio of 0.9 indicating that for every unit of risk taken, you can get 0.9 times excess return.
Principal Emerging Bluechip Fund, Canara Robeco Emerging Equities Fund and Edelweiss Mid Cap Fund have almost equal Sharpe ratio and generate slightly more than 0.7 times the return for every unit of risk taken.
Among the top 5, HDFC Mid-Cap Opportunities Fund
Canara Robeco Emerging Equities Fund has the lowest Sortino ratio among the top 5 at 0.95. It indicates that though the fund has a high beta among the top 5, the risk-adjusted return is less than others.
L&T Midcap Fund has the highest alpha of 9.37 which is one of the highest in mid-cap fund category.
What has changed from 2017?
Only Principal Emerging Bluechip Fund has retained the top ranking in 2018 also. Let us understand why the other four of the top 5 funds of 2017 did not make it to the top 5 of 2018.
SBI Magnum Midcap Fund – The returns of this fund do not match up to the returns given by other funds in this category. The return in the last one year is only 6.69% as against the category of 13.33%.
Aditya Birla Sun Life Pure Value Fund – Though this fund predominantly invests in mid-cap stocks, it is categorized as a Large and mid-cap fund. Hence, it was not considered.
Franklin India Prima Fund – The fund has not been able to match the returns of its peers from the past three years. Also, it has a high expense ratio of 2.41%. It is giving an alpha of 5.87 for a risk of 0.89 beta. Other funds have generated a higher alpha than this fund for a lesser risk.
L&T India Value Fund – This fund is categorized as Multicap fund and hence was not considered.
If you want less volatility in your midcap fund and also better returns, opt for L&T Midcap Fund. If you are looking at moderate risk and higher returns, choose either Edelweiss Mid Cap Fund or HDFC Mid-Cap Opportunities Fund.
Canara Robeco Emerging Equities Fund and Principal Emerging Bluechip Fund can be chosen if you are ready to take higher risk for good returns.