These four midcap mutual funds have outperformed Nifty Next 50 consistently

Published: September 30, 2020 at 10:57 am

In this report, we evaluate how actively managed midcap mutual funds have fared against the Nifty Next 50 Total Returns Index. We identify four midcap mutual funds have outperformed the Nifty Next 50 total returns index consistently.

In the Handpicked List of Mutual Funds Oct-Dec 2020 (PlumbLine) edition, we pointed out that we will be reevaluating midcap mutual funds vs Nifty Next 50 index. Nifty Next 50 has a risk and reward almost identical to that of the Nifty Midcap 150 Index. As we just saw in the Nippon India Nifty Smallcap 250 Index Fund Review. Therefore it is natural such a comparison is made.

Remember that although SEBI defines Nifty Next 50 stocks as part of the large cap universe, it is illiquid (high impact cost) and therefore quite volatile as explained before Warning! Even “large cap” stocks are not liquid enough! Can you handle this?

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 Sep 29th 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
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: 12/19 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 676 out of 676 times or 100%. Let us call this performance consistency. HDFC Mid Cap Opportunities Fund beat NN50 495 out of 677 times equivalent to a performance consistency of 73%

Four years: Only 6/17  funds managed 70% or more performance consistency!

Three years: Only 4/17 funds managed 70% or more performance consistency!

These are the four funds that qualified as above over 5 and 4 and 3 years.

L&T Mid Cap Fund-Direct Plan-Growth
Kotak Emerging Equity Scheme – Growth – Direct
DSP  Midcap Fund – Direct Plan – Growth
Invesco India Midcap Fund – Direct Plan – Growth Option

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.

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements write to pattu [at] freefincal [dot] com
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