Last Updated on December 29, 2021 at 5:38 pm
A factor-based index is one in which parameters like volatility, momentum, alpha, ROE, PB, PE etc are used to construct the index instead of market capitalization. This is one way to reduce concentration risk in traditional indices like Nifty and Sensex. Midcap mutual funds have struggled to beat the NIFTY Midcap150 Quality 50 Index.
Announcement: A new seminar is available: How to construct a long-term investment portfolio – a guide for beginners. You can sign up via this form.
While the NIfty 100 consists of the top 100 companies based on full market capitalisation from NIFTY 500, the Nifty Midcap 150 Index represents the next 150 companies (companies ranked 101-250) based on full market capitalisation from NIFTY 500.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
The NIFTY Midcap150 Quality 50 index chooses 50 companies from the Nifty Midcap 150 index based on a “quality score”. The score represents higher profitability, lower leverage and more stable earnings from the Nifty Midcap 150 universe.
Regular readers may be aware that we have discussed different types of these indices before:(1) How good are the top 10 stocks of NIFTY Quality Low-Volatility 30 Index? (2) Are Nifty Smart Beta (strategic) Indices better than the Nifty Next 50? (3) Watch my talk on momentum and low volatility stock investing in India
According to the methodology document, equal weight is given to return on equity (last fiscal year), debt to equity (last fiscal year) and last five year EPS growth variability. The debt to equity factor is not used for financial services stocks.
A quality score is defined as 0.33 * Z score of ROE + 0.33 * – (Z score of D/E) + 0.33* – (Z score of EPS growth variability). Here Z scores refer to how much a particular factor deviates from average value divided by the standard deviation.
The index is weighted by the square root of the free float market cap times the quality score. Each stock can either have a maximum exposure of 5% or five times its weight in the parent index.
The Quality index is compared below since inception and 1st Feb 2018 with Nifty MIdcap 150.
Shown below are the rolling returns and rolling standard deviation over five years (left panel) and three years (right panel). Even during periods when the quality index did not outperform the parent index, it has been less volatile (lower the standard deviation, lower the volatility).
The quality midcap index has also fared well against NIfty Next 50 TRI.
The table below shows how poorly midcap funds have performed when compared to the NIFTY Midcap150 Quality 50 index over five years and three years.
| Fund | No of rolling return entries (5 Years) | No of times fund has outperformed the index (5 years) | rolling return outperformance Consistency Score (5 years) |
| Kotak Emerging Equity Scheme – Growth – Direct | 623 | 499 | 80% |
| L&T Mid Cap Fund-Direct Plan-Growth | 624 | 436 | 70% |
| DSP Midcap Fund – Direct Plan-Growth | 624 | 281 | 45% |
| Invesco India Midcap Fund – Direct Plan-Growth Option | 624 | 252 | 40% |
| UTI Mid Cap Fund-Growth Option- Direct | 625 | 192 | 31% |
| HDFC Mid Cap Opportunities Fund -Direct Plan-Growth Option | 625 | 191 | 31% |
| Axis Midcap Fund – Direct Plan-Growth | 624 | 173 | 28% |
| Franklin India Prima Fund – Direct-Growth | 625 | 137 | 22% |
| Sundaram Mid Cap Fund- Direct Plan-Growth Option | 624 | 62 | 10% |
| SBI Magnum MIDCAP FUND – DIRECT PLAN – GROWTH | 624 | 16 | 3% |
| Motilal Oswal Midcap 30 Fund (MOF30)-Direct Plan-Growth Option | 338 | 8 | 2% |
| Tata Mid Cap Growth Fund – Direct Plan-Growth | 624 | 5 | 1% |
| Taurus Discovery (Midcap) Fund-Direct Plan-Growth Option | 625 | 0 | 0% |
| Aditya Birla Sun Life Midcap Fund – Growth – Direct Plan | 624 | 0 | 0% |
| BNP Paribas Mid Cap Fund – Direct Plan-Growth Option | 624 | 0 | 0% |
| Reliance Growth Fund – Direct Plan-Growth Plan – Growth Option | 624 | 0 | 0% |
| Baroda Mid-cap Fund- Plan B (Direct) – Growth Option | 619 | 0 | 0% |
| Quant Mid Cap Fund-Growth Option-Direct Plan | 619 | 0 | 0% |
| DHFL Pramerica Midcap Opportunities Fund – Direct Plan-Growth Option | 395 | 0 | 0% |
| Fund | No of rolling return entries (3 Years) | No of times fund has outperformed the index (3 years) | rolling return outperformance Consistency Score (3 years) |
| L&T Mid Cap Fund-Direct Plan-Growth | 1114 | 652 | 59% |
| Kotak Emerging Equity Scheme – Growth – Direct | 1113 | 486 | 44% |
| Sundaram Mid Cap Fund- Direct Plan – Growth Option | 1114 | 478 | 43% |
| BNP Paribas Mid Cap Fund – Direct Plan – Growth Option | 1114 | 466 | 42% |
| HDFC Mid Cap Opportunities Fund -Direct Plan – Growth Option | 1115 | 461 | 41% |
| Franklin India Prima Fund – Direct – Growth | 1115 | 453 | 41% |
| SBI Magnum MIDCAP FUND – DIRECT PLAN – GROWTH | 1114 | 439 | 39% |
| DSP Midcap Fund – Direct Plan – Growth | 1114 | 434 | 39% |
| Invesco India Midcap Fund – Direct Plan – Growth Option | 1114 | 422 | 38% |
| Tata Mid Cap Growth Fund – Direct Plan Growth | 1114 | 406 | 36% |
| UTI Mid Cap Fund-Growth Option- Direct | 1115 | 380 | 34% |
| Aditya Birla Sun Life Midcap Fund – Growth – Direct Plan | 1114 | 372 | 33% |
| Axis Midcap Fund – Direct Plan – Growth | 1114 | 343 | 31% |
| Motilal Oswal Midcap 30 Fund (MOF30)-Direct Plan-Growth Option | 828 | 161 | 19% |
| Taurus Discovery (Midcap) Fund-Direct Plan-Growth Option | 1115 | 112 | 10% |
| Reliance Growth Fund – Direct Plan Growth Plan – Growth Option | 1114 | 0 | 0% |
| Baroda Mid-cap Fund- Plan B (Direct) – Growth Option | 1109 | 0 | 0% |
| Quant Mid Cap Fund-Growth Option-Direct Plan | 1108 | 0 | 0% |
| DHFL Pramerica Midcap Opportunities Fund – Direct Plan – Growth Option | 885 | 0 | 0% |
| BOI AXA MID & SMALL CAP EQUITY & DEBT FUND – DIRECT PLAN GROWTH | 239 | 0 | 0% |
| Edelweiss Mid Cap Fund – Direct Plan – Growth Option | 158 | 0 | 0% |
| IDBI Midcap Fund Growth Direct | 111 | 0 | 0% |
| Mahindra Unnati Emerging Business Yojana – Direct Plan – Growth | 0 | 0 | 0% |
What does this mean? While the manner in which the short-list was created is debatable, with a short trade-history (shorter than back-projected data), it is certainly food for thought that a simple automated short-list of midcap stocks has been tough for active fund managers to beat. Although data Mining in Index Construction is an issue, as it stands the NIFTY Midcap150 Quality 50 index is a good candidate for a passive mutual fund.
With only three midcap mutual funds managing to beat Nifty Next 50 consistently and only six midcap mutual funds overpowering Nifty Midcap 150 in the last 5 years, it is time for investors to question if active midcap funds are necessary for their portfolios.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)