Goodwill Investors’ Education initiative : Still the best option, Mid Cap Mutual Funds

Goodwill Investors’ Education initiative :

Mutual Funds- Still the best option: Mid Cap MFs

The Covid ’19 virus has no doubt hammered the life of valuable human beings per se but also Bourses in a big way in the last two months and the redeeming factor is that the markets have started rebounding with vengeance given the past few days uptrend in the indices. Everyone in the market had became nervous owing to unprecedented slide in the indices-not only in India but world over. The rating agencies, International organisations like IMF and Economists started painting a grey picture and became quite pessimistic about the whole economy -world over. Many segment Industries like Airlines, Transport vehicle manufacturers, Oil Companies et al are all at the verge of going bankrupt. Job losses, production cuts, far reduced demand and consumption all led to economic chaos.

The uptrend in the stock markets-not in a small way but substantial in the last few days has amply demonstrated that the catastrophe was primarily technical and external and not owing to the fundamentals of the Corporates. The recently announced results of some of them at least like Axis bank, Hero Corp, Kotak bank, Granules India Ltd, some of the I T Companies and Banks have reasonably led us to conclude that there is now at least light at the end of the tunnel for the stock market operators. The Mid cap shares have reasonably done well and will continue to do so in the near future. So the Mutual Funds with focus on Mid caps are the ones that would perhaps be preferred by shrewd investors.

Data from AMFI shows that many investors are not giving up on midcap Mutual  funds as expected. The inflows in the mid cap schemes still stood at Rs 497.16 crore, compared to Rs 1,233.17 crore in the month of March. However, fund managers ask investors to look at the long term returns posed by the mid cap schemes before deserting them. The mid cap category is among the top 5 on the 10-year return chart, despite the long correction in the segment.
“Mid cap is a wide segment and well, better than the small caps in terms of governance and quality. It is not a small segment like the large caps. Large caps haven’t done well in 2015-2018 time period. And this gave mid caps more visibility. Despite the correction, midcap valuations are fairly well placed and it has some really upcoming sectors like insurance, digital businesses, chemical, I.T., pharma etc. Most of these segments have many good mid cap companies. I think the long-term returns are because of some of these companies,” says a fund manager of a leading Mutual Fund AMC.

Seven mid cap schemes offered more than 12% returns over 15 years. Five of them offered over 12% returns in the last 10 years. More than 12% is relevant only because we normally assume 12% returns while calculating our long-term financial goals. Fund managers believe that the expectations of the midcaps bouncing back are really high.

“We won’t say that midcaps might bounce back before largecaps, but the chances of them doing well as soon as the COVID19 risks are over are good. They have good valuations, some mid caps companies are handling this situation very well and there is a huge ground for stock picking in the segment. Our outlook for the mid cap segment is positive and I believe that investors should not shun their mid cap schemes at the moment,” says Mayur Patel, Fund Manager, IIFL Mutual Fund.
However, this is not to say that retail investors should start hoarding midcaps. Fund managers say that investors who are already invested in midcap schemes should not sell their investments and if investors have the risk appetite, they can buy new schemes too. “Investors who take risk and have a long investment horizon can buy a mid cap scheme if their asset allocation allows them. Don’t go overboard. However, be patient with your investments. Look at your long term returns and don’t book losses in your books’ says Mayur Patel

Finally, do not overlook your current situation and risk appetite. If you cannot afford to take the extra risk associated with these schemes, it is advisable to stay away from them. For those who would venture to take calculated risks in mid -term horizon may look the Mid Cap MF schemes of  well known and proven Asset Management Companies.

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