Last Updated on August 22, 2022 at 11:14 pm
In this report, we evaluate how actively managed midcap mutual funds have fared against the Nifty Next 50 Total Returns Index. Only three midcap mutual funds have beat Nifty Next 50 consistently over every possible 3,4 and 5 year periods.
Why is this comparison made: Nifty Next 50 has a risk and reward almost identical to that of the Nifty Midcap 150 Index. In fact, Nifty Next 50 is a bit more volatile. See: Worried about Nifty Next 50 Index? What you need to know. This makes the comparison with midcap fund a natural extension.
Investors must appreciate the strange nature of the Nifty Next 50. Although it is “technically” part of the large cap universe, it is illiquid and therefore quite volatile as explained before Warning! Even “large cap” stocks are not liquid enough! Can you handle this?
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We shall consider rolling returns. That is, we shall compare every possible 1,2,3,4 and 5 year return periods possible from 1st Jan 2013 (from the inception of direct plans) to June 19th 2020. We shall only consider funds that have enough history to generate 1000 or more 1,2 and 3-year rolling return data points.
This is the full list of 22 midcap funds considered for the study. Among these, Edelweiss Mid Cap Fund, IDBI Midcap Fund and Mahindra Unnati Emerging Business Yojana were removed as the no of rolling return one-year data points were less than thousand (young funds with short history). DHFL Pramerica Midcap Opportunities Fund was also not considered as its 3-year history resulted in less than a thousand data points. These funds are indicated in red below.
| DSP Midcap Fund – Direct Plan – Growth |
| Invesco India Midcap Fund – Direct Plan – Growth Option |
| L&T Mid Cap Fund-Direct Plan-Growth |
| Kotak Emerging Equity Scheme – Growth – Direct |
| Axis Midcap Fund – Direct Plan – Growth |
| Franklin India Prima Fund – Direct – Growth |
| Taurus Discovery (Midcap) Fund-Direct Plan-Growth Option |
| Tata Mid Cap Growth Fund – Direct Plan Growth |
| HDFC Mid Cap Opportunities Fund -Direct Plan – Growth Option |
| Motilal Oswal Midcap 30 Fund (MOF30)-Direct Plan-Growth Option |
| BNP Paribas Mid Cap Fund – Direct Plan – Growth Option |
| Sundaram Mid Cap Fund- Direct Plan – Growth Option |
| Aditya Birla Sun Life Midcap Fund – Growth – Direct Plan |
| UTI Mid Cap Fund-Growth Option- Direct |
| SBI Magnum MIDCAP FUND – DIRECT PLAN – GROWTH |
| Reliance Growth Fund – Direct Plan Growth Plan – Growth Option |
| Baroda Mid-cap Fund- Plan B (Direct) – Growth Option |
| Quant Mid Cap Fund-Growth Option-Direct Plan |
| DHFL Pramerica Midcap Opportunities Fund – Direct Plan – Growth Option |
| Edelweiss Mid Cap Fund – Direct Plan – Growth Option |
| IDBI Midcap Fund Growth Direct |
| Mahindra Unnati Emerging Business Yojana – Direct Plan – Growth |
Five years: 11/18 funds have outperformed Nifty Next 50 (NN50)with a consistency of 70% or more. For example, DSP Midcap Fund got a better return than NN50 over five years 604 out of 604 times or 100%. Let us call this performance consistency. HDFC Mid Cap Opportunities Fund beat NN50 463 out of 605 times equivalent to a performance consistency of 76.5%
Four years: Only 6/18 funds managed 70% or more performance consistency!
Three years: Only 3/18 funds managed 70% or more performance consistency!
Two years: Only 3/18 funds managed 70% or more performance consistency!
one year: Only 1/18 funds managed 70% or more performance consistency!
These are the three funds that qualified as above over 5,4 and 3 years:
| DSP Midcap Fund – Direct Plan-Growth |
| L&T Mid Cap Fund-Direct Plan-Growth |
| Kotak Emerging Equity Scheme – Growth – Direct |
Even if we consider trailing returns, only 10 out of 23 midcap funds have managed to outperform Nifty Next 50 TRI. That is, get a less negative return.
What do these results mean? Please do not rush to invest in these funds! These results only reiterate what we have been saying for a while: Those who want midcap (or small cap) exposure need not look beyond Nifty Next 50 passive funds. See: Combine Nifty and Nifty Next 50 funds to create large, mid cap index portfolios and What is the best way to invest in Nifty Next 50 Index? and ICICI Nifty Next 50 Index Fund vs Reliance ETF Junior BeEs
Investors are better off with a Nifty Next 50 index fund than a Nifty Midcap 150 index fund or active midcap funds since it is impossible to predict which active fund would outdo NN50 in future.