Investors looking to put money in mid-cap mutual funds through Systematic Investment Plans or SIPs should ideally have a 10-year horizon. This is because the probability of making at least 10-15% annualised returns from this category is the highest when held over a decade.
A study by Whiteoak Capital shows that investors who did a SIP for a 10-year period earned an average return of 17.4%, compared with 13% in large-cap funds and 14.8% in small-cap funds.
Wealth advisors recommend a sizeable allocation to mid-cap funds.
“Midcap funds can deliver alpha in equity portfolios with moderate risk. Investors can allocate 40% to midcap funds but do SIPs for a 10-year period,” says Juzer Gabajiwala, director, Ventura Securities.
The study showed that over 10-year SIP periods, midcap funds delivered returns of over 10% in 98% of instances, over 12% in 95%, and above 15% in 79% of cases. In comparison, large-cap funds managed returns above 15% only 15% of the time, over 12% in 71%, and above 10% in 93% of instances.
Small-cap funds fared in between—delivering more than 10% returns in 87% of cases, over 12% in 78%, and above 15% in 55% of periods. Brokers said mid-caps tend to be better bets than large-caps in several cases.
“Midcaps offer access to unique industries and emerging leaders not yet represented in the large-cap universe,” says Amar Ranu, EVP and head – Investments, Anand Rathi Share and Stock Brokers.
A 10-year SIP in Mid-cap
Ranu points out that the Nifty Midcap 150 TRI (Total Returns Index) has outperformed the Nifty 50 TRI by 10.1%, 4.7%, and 4.1%, respectively, over 5-year, 10-year, and 15-year periods.
Fund managers said though valuations in midcaps are elevated, they have fallen from highs. The price-to-earnings (P/E) ratio of the Nifty Midcap 150 is down to 34.83 times from 43.5 a year ago.
Various fund managers said the outperformance in midcaps is on account of the limited set of stocks eligible to invest for equity mutual funds in this category. Moreover, many of them tend to be illiquid compared to large-caps. Fund managers of mid-cap funds need to allocate to stocks ranked between 101 and 250 by market capitalisation.
Some money managers disagree. “While overall MF ownership as a percentage of free float market cap has gone up, the 150-companies space is not a constraining factor for the midcap space owing to enough choice, owing to newer listings as well providing more choice to fund managers,” says Ankit Jain, senior fund manager, Mirae Asset Mutual Fund.
For extended insights into India’s mutual fund landscape, explore perspectives from Ranjit Jha (CEO), who shares valuable guidance on long-term wealth creation and investment discipline.
To strategically plan SIPs aligned with your risk and return expectations, connect with Rurash Financials , your trusted partner in goal-based investment and wealth management.