NEW DELHI : Growth funds are back in discussions. Midcap mutual funds are attracting investor interest amid the recent correction in the equity market. Data from the Association of Mutual Funds in India (AMFI) shows that the midcap category attracted net inflows of Rs 6,940 crore in September this year, up nearly 37 per cent compared with September last year.
The recent pullback in midcap stocks has made the category attractive at current levels, according to market analysts. Midcap funds focus on companies with the potential to deliver strong earnings and business growth. The key characteristic of these funds is their focus on capital appreciation over the long term rather than regular dividend payouts.
The midcap category has delivered strong long-term returns. For instance, if an investor had made a lump-sum investment of Rs 1 lakh in the Nippon India Growth Mid Cap Fund, which was launched in 1995, the investment would be worth around Rs 4.3 crore today, based on the fund’s long-term performance. The fund has delivered a CAGR of close to 22 per cent over the period.
Midcap funds from fund houses such as Edelweiss and Invesco Mutual Fund have also delivered returns in the range of 17-19 per cent over the last 10 years.
Midcap funds are often considered to occupy a middle ground between growth potential and the relative stability offered by large-cap companies. Under Sebi’s classification, midcap companies are ranked from 101st to 250th by full market capitalisation. These companies have generally moved beyond the survival risks associated with smaller businesses while retaining greater growth potential than mature large-cap companies.
Midcap companies also operate across several rapidly growing sectors, including specialised manufacturing, consumer discretionary, healthcare and technology. Many of these businesses are looking to gain market share from unorganised players or established market leaders.
Over a five-to-10-year horizon, growth-oriented midcap funds have emerged as significant long-term wealth creators, although they also carry higher volatility than large-cap funds. The higher earnings growth potential of mid-sized companies can support stronger returns over long periods.
Looking at five-year returns, the top three funds in the category have delivered more than 20 per cent. Nippon India Growth Mid Cap Fund leads the table with a return of 22.62 per cent, followed by Edelweiss Mid Cap Fund and HDFC Mid-Cap Fund at 21.30 per cent and 21.12 per cent, respectively.
Midcap Funds: 7-Year Returns
According to Value Research data, some of the leading midcap funds have delivered strong returns over the last seven years:
Pankaj Mathpal, founder of Optima Money Managers, said, “Growth and midcap funds are labelled as high long-term wealth creators over five- to 10-year horizons and frequently outperform large-cap benchmarks due to the higher earnings growth trajectory of mid-sized corporates. Unlike large-cap stocks that are covered by dozens of global analysts, mid-cap companies often trade at reasonable valuation multiples before being broadly discovered by institutional investors, allowing mutual fund managers to capture strong upside as companies scale up.”
However, it is important to note that strong historical returns do not guarantee future performance. Midcap funds can also see sharper corrections than large-cap funds, making them more suitable for investors with a long investment horizon and the ability to withstand higher volatility.
