Mid Cap Mutual Funds offer you the opportunity to create significant long-term wealth. However, not all Mid Cap Mutual Funds are worthy of your investment. It is vital to select only those mutual funds that focus on picking quality stocks in the mid-cap segment.
Which are the best Mid Cap Mutual Funds to invest in 2022?
There is a total of 28 Mid Cap Mutual Funds in India and their combined average net assets under management (AUM), as of July 31, 2022, stands at a mammoth Rs 1,68,437 crore.
With a universe of 28 midcap mutual funds, identifying the best midcap fund becomes crucial because unlike large-cap funds, which more or less invest in the same top 100 companies, albeit in varying allocations, investing in midcap funds is a tricky business. This is because Mid Cap Mutual Funds invest in relatively lesser-known companies that are striving to establish their brand value in the lives of the Indian consumers. Also, unlike Large Cap Mutual Funds, where creating alpha is difficult since the investible universe is limited, when it comes to Mid Cap Mutual Funds, the fund manager's investment style and the strategy they follow can truly make a difference.
Examples of Mid Cap Mutual Funds in India
This is why, PersonalFN has shortlisted three best Mid Cap Mutual Funds to invest in 2022 after stringently evaluating each of the 28 midcap mutual funds on numerous qualitative and quantitative parameters. But before we reveal our list of best Mid Cap Mutual Funds to invest in 2022, let us revisit the basic definition of a Mid Cap Mutual Fund.
What are Mid Cap Mutual Funds?
The Securities and Exchange Board of India (SEBI) defines Mid Cap Mutual Fund as an 'open-ended equity scheme that invests a minimum of 65% of its total assets in equity and equity-related instruments of mid-cap companies'. Now, mid-cap companies are typically defined as companies ranking from 101st to 250th in terms of full market capitalisation. Generally, these companies have a market cap of more than Rs 5,000 but less than Rs 20,000 crore. The fund manager has the flexibility to invest the balance 35% in either large or small cap stocks, debt instruments, or simply maintain it as cash reserves.
What are the advantages of investing in Mid Cap Mutual Funds?
Mid Cap Mutual Funds have the potential to deliver superior returns because mid-sized companies are usually in their growth phase. Historical data suggests that Mid Cap Mutual Funds have the ability to outperform Large Cap Mutual Funds over the long term.
Notably, mid-cap companies have better access to capital and various resources when compared to small-caps, but fewer opportunities as compared to large-caps. Their management team is also stronger than that of small-caps and they adapt to new trends with better ease. They hold the potential to become the large-caps of tomorrow. In addition, you also get the opportunity to get exposure to certain niche stocks/sectors that may have high future potential.
You can invest in Mid Cap Funds via the Systematic Investment Plan (SIP) to reap the benefit of rupee-cost averaging and compounding of wealth.
[Must Read: Best Mutual Funds for SIP]
Top stock holdings of Mid Cap Funds
What are the risks involved in Mid Cap Mutual Funds?
Since Mid Cap Mutual Funds invest in emerging companies, the risk involved is higher.
Join Now: PersonalFN is now on Telegram. Join FREE Today to get 'Daily Wealth Letter' and Exclusive Updates on Mutual Funds
Mid-cap stocks are highly volatile, although the risk involved is slightly lower compared to small-cap stocks and the growth opportunities are better. During bull phases, Mid Cap Funds tend to outperform their pure Large-cap and even their Large & Mid-cap peers by a significant margin.
However, Mid Cap Funds are not as resilient during bear phases and may plunge lower than Large Cap Funds. Keep in mind that mid-cap companies have a limited scale of operation compared to their large-cap peers, lower customer outreach, and limited access to various resources. These factors make them vulnerable to high risk, especially during gloomy economic conditions.
This positions midcap funds as a high risk – high return investment avenue. On the risk-return spectrum, Mid Cap Funds are just below Small Cap Funds and Thematic/Sectoral Funds.
Who should invest in Mid Cap Mutual Funds?
If you have the appetite for high risk and are looking to create an inflation-beating and wealth-generating avenue with a long-term perspective, consider investing a portion of your portfolio in mid cap funds. It is advisable to have a long-term investment horizon of at least 5-7 years when investing in Mid Cap Funds.
How much to invest in Mid Cap Mutual Funds?
Aggressive investors who can tolerate short-term market volatility for high future gains can consider allocating around 25%-30% of their equity mutual fund portfolio in Mid Cap Funds. The balance can be in Large Cap Funds, Value Funds, Flexi Cap Funds, etc.
On the other hand, investors with moderate risk appetite can consider allocating 15%-25% in Mid Cap Funds. Conservative investors and investors who have an investment horizon of less than 5 years should avoid ideally investing in Mid Cap Mutual Funds.
How are Mid Cap Mutual Funds taxed?
Mid cap mutual funds are equity-oriented mutual funds and hence they follow equity taxation. The holding period for Mid cap mutual funds from a tax perspective is 12 months. So, if you sell your Mid Cap Fund units before 12 months, you pay short-term capital gains (STCG) tax of flat 15%.
On the other hand, if you sell your mid cap fund units after completing one year, you pay a long-term capital gains tax of 10% with indexation, but only if your gains exceed Rs 1 Lakh in a financial year. If your long-term gains are below Rs 1 Lakh and you redeem after completing one year, then you do not have to pay any tax on these gains.
Let us now take a look at the three best midcap mutual funds to invest in 2022.
List of Best Mid Cap Mutual Funds to Invest in 2022
Best Mid Cap Mutual Fund to Invest in 2022 #1: Kotak Emerging Equity Fund
Launched in March 2007, Kotak Emerging Equity Fund is a midcap-biased fund that seeks to identify the hidden growth potential of mid-sized companies. The fund has proven its ability to timely identify and capture available opportunities in the mid-cap space and create significant wealth for long-term investors. With a compounded annualised return of around 17.1% over the past 5 years, KEEF has significantly outperformed its benchmark Nifty Midcap 150 – TRI index and many of its peers.
Top portfolio holdings of Kotak Emerging Equity Fund
Kotak Emerging Equity Fund usually holds a fairly large portfolio of stocks spread across sectors. As of July 31, 2022, the fund held as many as 71 stocks in its portfolio. Its top holdings include Schaeffler India, Supreme Industries, SKF India, Cummins India, and Coromandel International, among others. In terms of sector, Engineering tops the list of allocation with an exposure of 22.6%, followed by Financial Services, Consumer Durables, Fertilisers, Auto Ancillaries, Pharma, Construction, Chemicals, Consumption, etc.
Performance across market phases of Kotak Emerging Equity Fund
The fund has shown its ability to outpace the benchmark and the category average with a considerable margin during bull phases. Meanwhile, its performance during bearish market phases is respectable as well which shows its ability to protect the downside risk during tough market conditions.
Click here to read our detailed analysis on Kotak Emerging Equity Fund.
Best Mid Cap Mutual Fund to Invest in 2022 #2: PGIM India Midcap Opportunities Fund
Launched in December 2013, PGIM India Midcap Opportunities Fund is a growth-oriented mid-cap biased fund that recorded major breakthrough outperformance in the last couple of years. The fund achieved this feat through active management of portfolio to identify high potential stocks/sectors. Over the past 5 years, PGIM India Midcap Opportunities Fund has rewarded investors with a CAGR of around 21.4%, as against a 14.7% CAGR delivered by its benchmark Nifty Midcap 150 – TRI index.
Top portfolio holdings of PGIM India Midcap Opportunities Fund
PGIM India Midcap Opportunities Fund invests in a well-diversified portfolio of 50-55 stocks, limiting exposure to single stocks within the 5% mark. As of July 31, 2022, the fund held a fairly diversified portfolio of 49 stocks. Names like ABB India, Timken India, TVS Motor Company, HDFC Bank, and Dalmia Bharat currently appear in its top 10 holdings. In terms of sector allocation, PGIM India Midcap Opportunities Fund has higher allocation to Engineering and Financial Services, along with diversification to Auto, Consumption, Infotech, Construction, etc.
Performance across market phases of PGIM India Midcap Opportunities Fund
PGIM India Midcap Opportunities Fund recorded poor performance in its initial years wherein it significantly underperformed the benchmark and the category average. However, the fund showed a turnaround performance and has proven its ability to limit the downside during bear market phases and do well during bull phases to outperform its peers over a complete market cycle.
Click here to read our detailed analysis on PGIM India MidCap Opportunities Fund.
Best Mid Cap Mutual Fund to Invest in 2022 #3: Quant Mid Cap Fund
Launched in February 2001, Quant Midcap Fund is an actively managed scheme in the Mid-cap Fund category that follows aggressive investment strategies. Despite being small in size, Quant Midcap Fund has registered extraordinary performance and handsomely rewarded its investors. Over the last five years, Quant Midcap Fund has topped the returns chart by registering a growth of 21.8% CAGR
Top portfolio holdings of Quant Mid Cap Fund
Quant Midcap Fund usually holds a compact portfolio of around 30-35 stocks across market caps. As of July 31, 2022, the fund held 30 stocks in its portfolio. The fund held higher exposure in Patanjali Foods, Container Corporation of India, The Indian Hotels Company, Canara Bank, Bank of Baroda, and Ashok Leyland, among others. In terms of sector, the fund's portfolio is skewed towards Financial services, followed by Transportation, Auto, Consumption, Chemicals, Hotels, Telecom, etc.
Performance across market phases of Quant Mid Cap Fund
Quant Midcap Fund is among the few funds that did well to limit the downside risk during the 2020 market crash and also recorded superior growth in the ensuing recovery phase. The fund constantly looks for opportunities across stocks and sectors which has resulted in significant alpha for its investors. Quant Midcap Fund is also quick in its approach to shift allocation between market caps depending on the market conditions.
This completes our list of the three best mid cap mutual funds to invest in 2022. The only thing left to do now is to invest in these best mid cap funds and reap the benefits of investing in market leaders of tomorrow.
If you wish to have super compressive and detailed research reports on the best mid cap mutual funds for 2022 and other diversified equity mutual funds to invest in, subscribe to PersonalFN's premium research service, FundSelect.
PersonalFN's FundSelect service provides insightful and practical guidance on the mutual fund schemes to Buy, Hold, and Sell. We will also help you choose some of the best Equity Linked Saving Schemes (ELSS) for your tax-saving with PersonalFN's premium research service, FundSelect. You also get access to our special reports, including the latest Tax Saving Mutual Fund Report. Here's a peak at the 3 best ELSS funds for 2022.
At PersonalFN, we apply a host of qualitative and quantitative parameters using our proprietary S.M.A.R.T score matrix.
S – Systems and Processes
M – Market Cycle Performance
A – Asset Management Style
R – Risk-Reward Ratios
T – Performance Track Record
The stringent process has helped our valued mutual fund research subscribers to own some of the best mutual fund schemes in their investment portfolio with a commendable long-term performance track record. PersonalFN's service is apt if you are looking for insightful guidance and recommendations on some worthy funds having high growth potential in the years to come.
If you are serious about investing in a rewarding mutual fund scheme, subscribe now!
Warm Regards,
Divya Grover
Research Analyst
Copyright © Quantum Information Services Pvt. Ltd.
Quantum Information Services Pvt. Limited (PersonalFN) is an independent Mutual Fund research house and SEBI Registered Investment Adviser(Reg. No: INA000000680). This does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. All content and information is provided on an ‘As Is’ basis by PersonalFN. Information herein is believed to be reliable but PersonalFN does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. The services rendered by PersonalFN are on a best effort basis. PersonalFN does not assure or guarantee the user any minimum or fixed returns. PersonalFN and its employees, personnel, directors will not be responsible for any direct / indirect loss or liability incurred by the user as a consequence of him or any other person on his behalf taking any investment decisions based on the contents and information provided herein. Use of this information is at the user’s own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. All intellectual property rights emerging from this newsletter are and shall remain with PersonalFN. This is for your personal use and you shall not resell, copy, or redistribute the newsletter or any part of it, or use it for any commercial purpose. The performance data quoted represents past performance and does not guarantee future results. Mutual Fund Investments are subject to market risk, read all scheme realated document carefully. As a condition to accessing PersonalFN’s content and website, you agree to our Terms and Conditions of Use, available here.
in**@pe********.com
Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222
The registration is valid till suspended/cancelled by SEBI
About Author
