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.
🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
Subscribe for money management solutions via email! (Link takes you to our email sign-up form) Join 32,000+ readers in our community.
👉 New Tool Alert! NaviPlan: A Privacy-Focused Multi-asset Tracker and Goal Planner 👈
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.
We are on Google News
Use this button to add freefincal.com as a preferred personal finance source on Google News.
Explore 1,400+ videos on YouTube!
Subscribe to get posts via email!
Join 32,000+ readers and get free money management solutions delivered to your inbox! (Link takes you to our email sign-up form)Join our WhatsApp Channel
Explore our products
🔥Join our community of 9000+ users! 🔥- Use our Robo-advisory Tool to create a complete financial plan! More than 3,500 investors and advisors use this! Use the discount code robo25 for 20% off. Plan your retirement (early, normal, before, and after), plus non-recurring financial goals (such as child education) and recurring financial goals (such as holidays and appliance purchases). The tool helps anyone aged 18 to 80 plan for retirement, plus six non-recurring and four recurring financial goals, with a detailed cash flow summary.
- Our Flagship Course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,500 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 conditions! Watch the first lecture for free! One-time payment! No recurring fees! Lifelong access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
- Join the freefincal investor circle! An exclusive space for investors, advisors, fintech employees and students to access financial planning and insurance tools, mutual fund and stock analysis tools, coding strategies and Excel macros for data extraction. 750+ members are now part of our investor circle.
- Increase your income by getting people to pay for your skills! More than 900 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 seeking more clients through online visibility, or a salaried individual looking for side or passive income, we will show you how to do it by showcasing your skills and building a community that trusts and pays you. (Watch the 1st lecture for free). One-time payment! No recurring fees! Lifelong access to videos!
- Portfolio Tracker! Track your mutual funds and stock investments with our Google Sheet!
- We also publish monthly screeners for
Our Podcast: Let's Get Rich With Pattu
On Spotify: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! On Audible: Listen to the Let's Get Rich with Pattu Podcast
Listen to the Let's Get Rich With Pattu podcast on YouTube.
Now watch Let's Get Rich With Pattu தமிழில் (in Tamil)!About The Author
Dr M Pattabiraman giving a lecture
- 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 14 years of experience publishing news analysis, research and financial product development. He has over 28 years of teaching and research experience. He is also a public speaker and keynote presenter.
- He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice.
- Connect with him via Twitter(X) LinkedIn YouTube
- Pattabiraman has co-authored three print books.
This book helps you ask the right questions and find the right answers. It also includes nine online calculators to create custom solutions.
(2) Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want. 
Both the boy and girl versions of "Chinchu Gets a Superpower".
Most investor problems stem from a lack of poor decision-making. We made bad decisions and money mistakes when we started earning, and we spent years undoing them. Why should our children go through the same pain? What is this book about? As parents, what if we had to groom one ability in our children that matters not only for money management and investing but for every aspect of life? My answer: Sound decision-making. So, in this book, we meet Chinchu, who is about to turn 10. The story follows what he wants for his birthday and how his parents plan it, while also teaching him key ideas about decision-making and money management. What readers say! 
Feedback from a young reader after reading Chinchu Gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from a young age. The importance of money management and decision-making based on their wants and needs. Very nicely written in simple terms. - Arun.
About freefincal & its content policy
Freefincal is a News Media organisation 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: To get in touch, please use our contact form. (Sponsored posts or paid collaborations will not be entertained.)Our publications
- Your Ultimate Guide to Travel. This is an in-depth exploration of vacation planning, including how to find affordable flights, budget accommodations, and practical travel tips. It also examines the benefits of travelling slowly, both financially and psychologically, with links to relevant web pages and guidance at every step. Get the PDF for Rs 300 (instant download)
- How to profit from content writing: Our ebook is for those interested in getting a side income via content writing. It is available at a 50% discount for Rs. 500 only!