Mid-cap mutual funds aim at generating significant returns by investing in equity and equity-linked securities of mid-cap companies. Mid-cap companies are capable of providing higher returns, but they are riskier than large-cap funds.

Investing in the Midcap segment through passive funds is a good option for investors willing to stomach the high risk and want a low-cost passive product for their midcap portfolio. The mid-cap space offers investors an exposure to the emerging companies of the country, who are seen as future market leaders.

Mid-cap index funds are popular passive investment vehicles that track a specific mid-cap benchmark index to mirror the composition of the index. They are less risky than vanilla mid-cap funds and generate similar returns. If you are looking for long-term growth opportunities in the mid-cap segment, along with inflation-beating returns over time, you could consider investing in the Nifty Midcap 150 index.

Navi Mutual Fund, backed by Mr Sachin Bansal (Flipkart co-founder), has launched Navi Nifty Midcap 150 Index Fund, it is an open-ended scheme replicating /tracking Nifty Midcap 150 Index. The underlying index consists of 150 companies (listed on NSE, ranked 101-250) based on the Nifty 500 Index’s full market capitalization.

Table 1: Details of Navi Midcap 150 Index Fund

Type An open-ended scheme replicating /tracking Nifty Midcap 150 Index Category Index Fund
Investment Objective The investment objective of the scheme is to achieve a return equivalent to the Nifty Midcap150 Index by investing in stocks of companies comprising the Nifty Midcap 150 Index, subject to tracking error. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved. The Scheme does not assure or guarantee any returns.
Min. Investment Rs 500/- and in multiples of Re 1 thereafter. Additional purchase Rs 100/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
Entry Load Not Applicable Exit Load Nil
Fund Manager Mr. Pranav Vasa Benchmark Index Nifty Midcap 150 Index TRI (Total Return Index)
Issue Opens: February 21, 2022 Issue Closes: March 02, 2022

(Source: Scheme Information Document

The investment strategy for Navi Midcap 150 Index Fund will be as follows:

Navi Midcap 150 Index Fund aims to achieve its investment objective to generate a return equivalent to the Nifty Midcap 150 Index by investing in stocks of companies comprising the Nifty Midcap 150 Index, subject to tracking error.

The scheme endeavours to invest in stocks in proportion to the weightages of these stocks in the Nifty Midcap 150 Index. In general, the fund will invest a significant part of its corpus in equities; the surplus amount of the fund, not exceeding 5%, shall be invested in Cash/Tri-Party Repo, Repo in corporate debt securities & Money Market instruments.

The performance of the scheme may not be commensurate with the performance of the respective benchmark of the Schemes on any given day or over any given period. Such variations are commonly referred to as tracking errors. The scheme intends to maintain a low tracking error by actively managing the portfolio in line with the index. However, there is no assurance that all such buying and selling activities would necessarily result in benefit for the Fund.

A small portion of the net assets will be held as cash or will be invested in debt and money market instruments permitted by SEBI/RBI, including TREPS or an alternative investment for the TREPS as may be provided by the RBI, to meet the liquidity requirements under the Scheme.

Under normal circumstances, the Asset Allocation will be as under:

Table 2: Asset Allocation for Navi Midcap 150 Index Fund

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Equities and equity related securities covered by Nifty Midcap 150 Index 95 100 Medium to High
Debt & Money Market Instruments 0 5 Low to Medium

(Source: Scheme Information Document

About the benchmark

The NIFTY Midcap 150 represents the next 150 companies (companies ranked 101-250) based on full market capitalisation from the NIFTY 500. This index intends to measure the performance of mid-market capitalisation companies.

The NIFTY Midcap 150 Index is computed using the free-float market capitalization method, wherein the level of the index reflects the total free-float market value of all the stocks in the index relative to a particular base market capitalization value.

Here’s the list of top constituents by weightage and sector representation under the index as on January 31, 2022:

List

(Source: NIFTY Midcap 150 Index Factsheet

Note that the index review is undertaken semi-annually based on data for six months.

Who will manage the Navi Midcap 150 Index Fund?

The designated fund manager for this scheme will be Mr Pranav Vasa, he holds degrees in PGDM Finance and B.E. (Computer). Mr Pranav Vasa has more than 6 years of experience. In his past employment, he has worked with Birla Sun Life Insurance, and he has been associated with Navi Mutual Fund since 2016.

At Navi Mutual Fund, Mr. Vasa currently manages Navi Nifty 50 Index Fund and Navi Nifty Next 50 Index Fund.

Fund Outlook – Navi Midcap 150 Index Fund

Navi Midcap 150 Index Fund aims to mirror the performance of the Nifty Midcap 150 Index, which captures the movement of the mid-cap segment of the market. The scheme endeavours to invest in securities in similar proportion as the underlying index to generate parallel returns, subject to tracking errors.

Mid-sized companies may have high growth potential in the long run; they may grow gradually in favourable market conditions and could even enter into the large-cap universe. The scheme provides investors with an easy way to invest in the emerging companies of the country. The Nifty Midcap 150 Index has outperformed the Nifty 100 Index in 10 of the last 16 calendar years. The fortune of this scheme will be closely linked to how the Nifty Midcap 150 Index performs.

Being an Index fund reduces the risk of stock selection by the fund manager. All that Mr Pranav has to do with this fund is simply replicate the constituents of the Nifty Midcap 150 index in almost the same weights.

Although high-quality midcap stocks offer growth potential to investors’ portfolios, they are high risk – high, return investment proposition. They may be prone to higher market volatility in the near term, as the looming threat of the Omicron variant and the monetary policy action and stance amidst the inflationary pressures are taken by the RBI may pose a risk to economic growth would have an adverse impact on mid-sized companies. This may weigh down the NIFTY Midcap 150 Index and its top constituents. After the swift rally seen in the last 18 months, the margin of safety in mid and small caps appears to be narrow, and the direction of the equity markets from the current elevated levels is uncertain. These factors, among many others, could have a bearing on the scheme’s performance, and the portfolio may face intensified volatility in the near term.

It would be prudent to keep a long investment horizon of at least 5-7 years and assume a high risk if you consider investing in Navi Nifty Midcap 150 Index Fund.

This article first appeared on PersonalFN here


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