Last Updated on December 29, 2021 at 4:58 pm
Motilal Oswal Nifty Midcap 150 Index Fund opens for investment from Aug 19th. It is India’s second midcap Index fund. Principal AMC ran an index that tracked the Nifty Midcap 100 Index from May 2014 to June 2017*. In this article let us compare the performance of Nifty Midcap 150 with active mid cap funds and find out if it makes sense for investors to consider this fund.
What is the Nifty Midcap 150 Index? Like we discussed in the Motilal Oswal Nifty 500 Fund Review, out of the top 500 stocks by free-float market cap listed on the NSE, the top 50 from the Nifty 50, the next 50 form the Nifty Next 50, the top 100 form the Nifty 100, the next 150 form the Nifty 150 Mid cap index. The top 100 stocks are classified (quite arbitrarily!) as large cap, the middle 150 as mid cap and the bottom 250 as small cap. Also see: Motilal Oswal Nifty Smallcap 250 Index Fund: Will this make a difference?
* See: Why Value Research is wrong to offer one star to Principal Nifty 100 Equal Weight Fund. Now, we just discussed that both small cap and mid cap actively managed funds should be benchmarked against the Nifty Midcap 150: Why your small cap mutual fund must beat this benchmark! So let us use the Aug 2019 Equity Mutual Fund Performance Screener and find out how active mid cap funds have fared against the Index.
Nifty Midcap 150 Index Fund Performance
In this detailed article, Large Cap vs Mid Cap vs Small Cap Funds: Which is better for long term investing? I had published the following rolling return charts. To understand what is a rolling return, check out this video.
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The first lesson from the above graphs is, that the Nifty Midcap 150 need not outperform a large cap index like Nifty 100 (or NIfty 50) over 5 or 7 years even. So do not expect it to. In my opinion, with respect to Motilal Oswal Nifty Midcap 150 Index Fund, investors should ask this question:
Is the Nifty Midcap 150 index a replacement for Nifty Next 50 index?
To find out, we need to compare the risk and reward of both indices.
Nifty Midcap 150 vs Nifty Next 50
Let us now compare every possible five and ten-year returns and risk (standard deviation) of both indices.
Notice that over the 2333 5-year returns studied. the Nifty Midcap 150 index has at best provided a return comparable to Nifty Next 50. The risk over this period is shown below and it is seen that the Midcap index has a touch lower risk due to the higher number of stocks, but it is not significant.
The same observations can also be made over ten years.
Therefore, there is no compelling reason to choose Motilal Oswal Nifty Midcap 150 Index Fund over established Nifty Next 50 Index funds. Surprised that the Nifty Next 50 behaves this way? That is because Nifty Next 50 is NOT a large cap index!
Nifty Midcap 150 vs Active Mid cap Mutual Funds
The next step is to evaluate how tough this index is to beat. Using the Aug 2019 Equity Mutual Fund Performance Screener we compare 23 active Mid cap funds with this index over every possible 1,2,3,4,5 durations in terms of return outperformance and downside protection consistency (fund falling lower than index when the index falls).
We first demand 70% return outperformance over 5,4, and 3 years. That is, if there are 100 five-year returns, the fund should have beat the index at least in 70 of those durations.
Selecting the five-year filter reduces the 23 to 10! Add the four-year filter and it becomes 4!! Add the three-year filer and then it reduces to just two active funds!!
This is the reason I had earlier written, Why we badly need a Midcap & Smallcap Index Fund: Performance Comparison with Nifty Midcap 100 & Nifty Next 50. However, when you see the comparison with Nifty Next 50, it is clear that we have always had such an index: The Nifty Next 50.
Motilal Oswal Nifty Midcap 150 Index Fund: Should you invest?
You can, but there is no need to. If you can tolerate the risk, use a Nifty Next 50 in suitable proportions. See: Combine Nifty & Nifty Next 50 funds to create large, mid cap index portfolios.
There are well established Nifty Next 50 Index funds and ETFs. However keep this in mind: ETFs vs Index Funds: Stop assuming lower expenses equals higher returns! Plus: ICICI Nifty Next 50 Index Fund vs Reliance ETF Junior BeEs.
There is no need to invest in Motilal Oswal Nifty Midcap 150 Index Fund which is new and therefore has no history of tracking error. Nifty Next 50 offers you similar (often better) returns and comparable (a touch higher) risk. Convinced? Check this out: What is the best way to invest in Nifty Next 50 Index?
Also see: Motilal Oswal Nifty Smallcap 250 Index Fund: Will this make a difference?
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