Best Mid Cap Mutual Funds to Invest in 2019

Here’s the list of the best mid cap mutual funds to invest in 2019 –

  • L&T Mid Cap Fund
  • HDFC Mid Cap Opportunities Fund
  • DSP Mid Cap Fund
  • Sundaram Mid Cap Fund

Here are the parameter scores of the above funds according to Finpeg CRAFT Framework…

best mid cap mutual funds to invest in 2019 finpeg craf

To understand the parameters in detail, please refer to Finpeg CRAFT Framework

You can refer to the following pointers to understand what each of these parameters mean in short…

    • Long-term Percentile Rank
      This is average percentile rank of the fund since Jan 2004 based on 3-year return. This is a measure of a fund’s performance with respect to its peers. Lower the rank, better the performance.
    • Top25 Percentage
      This is the percentage to capture the number of times the fund was in top 25% since Jan 2004. This is a measure of consistency of performance of a fund. Higher the percentage, better the consistency.
    • Downside Deviation
      A variant of standard deviation. It only captures deviation below the average return. This captures the risk associated with the fund. Lower the deviation, lower is the risk.
    • Near-term Percentile Rank
      Average percentile rank of the fund in last 1 year based on 1-year return. This is a measure of a fund’s recent performance with respect to its peers. Lower the rank, better the performance.
    • Average Return in 2008-09
      Average 1-year return delivered by the fund during the crash of 2008-09. This captures the performance of the fund during times of stress.

Why L&T Mid Cap Fund is the best mid cap mutual fund to invest in 2019

For most above average investors, L&T Mid Cap Fund being the best mid cap fund in our view may come as a surprise.

Because above average investors (just a level below expert investors) would swear by HDFC Mid Cap Opportunities Fund as the mid cap fund that has done the trick for them for so many years.

But let’s look beyond performance for a moment – we will have a look at performance too in a few moments.

For starters, HDFC Mid Cap Opportunities Fund’s AUM size is humongous at Rs. 21,000 crore. For perspective, this is greater than that of HDFC Top 100 Fund (Rs. 15,000 crore) – the large cap offering of HDFC – which started a good 5 years before HDFC Mid Cap Opportunities Fund.

Here are the best large cap mutual funds to invest in 2019

Although the fund manager, Mr. Chirag Setalvad, is a brilliant fund manager we believe that the performance of HDFC Mid Cap Opportunities Fund is likely to not perform at the precedent it has set for itself and the mid cap category in general. But we are hopeful that it will continue beating the mid cap index.

L&T Mid Cap Fund is no star performer in terms of the parameters mentioned. But it has a great, proven fund manager in Mr. SN Lahiri. He is the former fund manager for DSP BlackRock Micro Cap Fund which needs no introduction.

The reason why the numbers don’t reflect the true worth of the fund is because Mr. Lahiri became the fund manager of L&T Mid Cap Fund only in 2014.

Now, if you see L&T Mid Cap Fund’s performance since this managerial change, it has a percentile rank of 9.6% and a top25 percentage of 89%! This is absolute domination of the mid cap space in the last 4 years.

Another factor greatly in favour of L&T Mid Cap Fund is the comfortable AUM which is about is less than 1/5th’s of HDFC Mid Cap Opportunities Fund.

What are Mid Cap Mutual Funds

sebi recategorization equity mutual funds

As per the latest definition, large cap companies are the 100 largest publicly listed companies in the country. Similarly, the next 150, meaning the companies ranked from 101 to 250, in terms of full market capitalization are termed as mid cap companies. The all the other companies, ranked from 251 onward, are termed as small cap companies.

So, the mutual funds which primarily invest the money they receive from investors in mid cap companies are termed as mid cap mutual funds.

Mid cap mutual funds have been the darlings of most mutual funds investors over the last few years. This biggest reason is the sheer return they have clocked in this long bull run that we are still in.

SEBI, after the latest recategorization, has mandated mid cap mutual funds invest at least 65% of the money they receive in mid cap companies. This restriction was absent prior to Feb 2018.

Surprisingly, all of the best large and mid cap funds belonged to the mid cap category before the recategorization was enforced.

What remains to be seen is how the mid cap funds adjust to the shrunken space of mid cap companies.

Who should invest in Mid Cap Mutual Funds

Because of the stellar performance of mid cap funds over the last 5-7 years, you might be tempted to start investing in mid cap mutual funds without much thought.

However, you need to understand that mid cap space is not for everyone. The returns are rewarding only if you can withstand the volatility. As we will shortly see what the typical volatility (as measured by standard deviation) is for mid cap mutual funds.

Second issue with the newly defined mid cap space is that the options available to fund managers in terms of companies to invest have become quite less – just 150. Earlier, mid cap mutual funds would venture into what today is the small cap space to find great investment opportunities. This is now possible to a lesser extent. This could mean that the risk-return profile could change and drift slightly toward that of large cap funds. However, this remains to be seen.

Everything said, mid cap space is where you are likely to earn returns greater than large cap space. If you can stomach the volatility, you should invest in the mid cap space. It will not disappoint you.

What are the expected returns of Mid Cap Mutual Funds

As mentioned, today’s mid cap space is not same as the mid cap space of 2017 and prior. Not to forget the 65% mid cap allocation restriction now imposed on mid cap mutual funds.

This means that we cannot take the past performance of mid cap mutual funds as the benchmark of future performance. Of course, this holds for most other categories too but especially so for mid cap mutual funds now.

This exercise should be viewed as an attempt of helping you with the past performance of the best mid cap funds in absolute terms and nothing else.

For the best mid cap mutual funds according to Finpeg, the following are the 3-year and 5-year rolling return and standard deviation.

best mid cap funds rolling return and standard deviation

Note – NAV considered is of regular and growth options of the funds and for the period 1st Jan 2010 to 31st Dec 2018

Let’s see over the next 7 years or so if the best mid cap mutual funds continue to yield returns as they have according to the table above.

To know what are the best mutual funds in other categories like large cap, visit this page.

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