Optimal Approach for Choosing Midcap Investment Funds
Investing in Midcap Funds: A Comprehensive Guide
The world of investment offers a variety of options, and one such choice is Midcap Funds. These funds, which invest in companies ranked roughly between 101st and 250th by market capitalization, balance growth potential with moderate volatility compared to large-cap and small-cap funds.
The NIFTY Midcap150 Quality 50 Index: A Unique Approach
Among the various Midcap Funds, the NIFTY Midcap150 Quality 50 Index stands out as a unique investment option. This strategic index, created by NSE from the midcap space, selects its constituent companies based on their Quality score, determined by return on equity, financial leverage, and EPS growth variability. Despite lower returns compared to other Midcap Indices, the NIFTY Midcap150 Quality 50 Index offers a safer investment option due to its focus on quality companies.
Performance of the NIFTY Midcap150 Quality 50 Index
Over the past five years, the NIFTY Midcap150 Quality 50 Index has shown a 5-year CAGR (Backtested) of 11.25%. Interestingly, 13 out of the 16 funds in this index have given better returns compared to the benchmark. However, as of 30 November 2022, the NIFTY Midcap150 Quality 50 Index has a lower return compared to the NIFTY Midcap 150 TRI. The returns offered by Midcap Indices are not significantly less, with the average returns of NIFTY Midcap 150 -TRI being 16.52%.
Selecting a Midcap Fund: A Systematic Approach
Choosing a Midcap Fund is a complicated decision, as every year the fund's ranking can change. A practical approach begins by shortlisting funds with consistent long-term returns, then eliminating those with recent performance issues or short-tenured managers. Next, assess key risk-return metrics like Alpha, Beta, and Sharpe Ratio to identify the strongest performers. Consider the fund’s investment strategy and sector allocation to ensure it matches your investment preference. Finally, compare the top candidates head-to-head to find the one best aligned with your risk tolerance and goals.
Top-Performing Midcap Funds
Examples of top-performing mid-cap funds incorporate a mix of data-driven and bottom-up stock picking strategies, with some focusing on sector leaders or scalable businesses. Funds like Quant Mid Cap (with a high Alpha of 2.1), Nippon India Growth Fund, and Motilal Oswal Midcap Fund stand out for their consistent performance metrics.
The Advantage of Midcap Funds
Midcap Funds offer better growth potential compared to large-cap funds and have lower volatility compared to small-cap funds. When an investor invests in Midcap Indices, the risk of selecting a fund that underperforms the benchmark gets reduced significantly.
As of now, there are 43 midcap funds available for an investor. The NIFTY Midcap150 Quality 50 Index consists of the top 50 companies from the universe of 150 companies in the NIFTY Midcap 150 Index. This unique index offers a unique investment opportunity for those who want to invest in companies that qualify the parameters of factor funds. The risk in the NIFTY Midcap150 Quality 50 Index is lower compared to other midcap funds due to its focus on quality companies.
In summary, a disciplined approach combining quantitative filters with qualitative assessment of management and strategy helps investors select and identify the best mid-cap funds tailored to their objectives. Whether you choose the NIFTY Midcap150 Quality 50 Index or other Midcap Funds, remember that a well-researched decision is the key to successful investment.
Note: The table showing the average 7-year rolling returns of 16 actively managed mid-cap funds as of 28th December 2022 is not included in this article due to space constraints.
- In the quest for suitable investment opportunities, consider the NIFTY Midcap150 Quality 50 Index, a Midcap Fund that offers a unique investment approach, focusing on quality companies with a lower risk profile.
- For those seeking low volatility yet promising returns, mutual funds such as Midcap Funds offer a balanced solution, providing better growth potential compared to large-cap funds and lower volatility compared to small-cap funds.
