Last Updated on March 5, 2023 at 10:08 am
There are 28 actively managed midcap mutual funds available for investment today. Out of these, 23 are older than five years. This article evaluates how these midcap mutual funds have fared against the Nifty Midcap 150 Total Returns Index. We found only three midcap mutual funds have outperformed the index consistently. Therefore it is a myth to claim that active mid cap funds can “easily” outperform the index.
We shall consider rolling returns. That is, we shall compare every possible 3,4 and 5-year return period from 1st Jan 2013 (from the inception of direct plans) to Feb 3rd 2023
We shall use the Equity Mutual Fund Screener to shortlist consistent performers. First, we consider five-year rolling returns. We shall define a rolling return outperformance consistency threshold as 70%. The fund should have outperformed the index by 70% of the total rolling return windows considered.
For example, 1204 5-year rolling returns windows are possible for the time duration mentioned above. L&T Mid Cap Fund-Direct Plan-Growth has outperformed the Nifty Midcap 150 Total Returns Index 734 out of those 1204 return windows. That is a 61% rolling returns outperformance consistency.
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- If we apply 70% as the threshold over five years, then only four midcap funds qualify.
- Axis Midcap Fund – Direct Plan-Growth
- Edelweiss Mid Cap Fund – Direct Plan – Growth Option
- Invesco India Midcap Fund – Direct Plan – Growth Option
- Kotak Emerging Equity Scheme – Growth – Direct
- Only three of those funds qualify if we also require 70% of rolling returns consistently over four years.
- Edelweiss Mid Cap Fund – Direct Plan – Growth Option
- Invesco India Midcap Fund – Direct Plan – Growth Option
- Kotak Emerging Equity Scheme – Growth – Direct
- On top of this, if we also require 70% rolling returns consistency over three years, the same three funds qualify.
Only three out of a possible 23 (with five years or more history) is quite a small number, especially considering how many investors and MF industry folk claim it is easier to beat the market in the midcap (and small cap) segments.
More importantly, the top funds tend to change every few years. This is based on past data. So even if you choose one of these for investment today, they may slip down in future.