Midcaps have established strong performance across various time periods, the Mid-cap companies are considered to be emerging future market leaders or future large caps. The midcap segment provides diverse as well as complementary sector-wide opportunities. Markets have broadened with the participation of new sectors which have higher weightage in the midcap segment.
Due to the current market conditions, mid-cap and small-cap stocks have significantly decreased in value and are available at lower valuations. Many investors consider this a good entry point to diversify your portfolio with an allocation to small-cap and mid-cap funds. Midcap complements one’s core portfolio allocation with the potential to generate relatively higher returns over the long term. Midcaps have generated relatively better risk-adjusted returns vs. Large caps across periods and the midcap segment presents a broad sector diversification opportunity to investors.
However, these midcap stocks are known for their volatile nature, the focus on quality while selecting mid-cap stocks ensures that the portfolio experiences lower volatility compared to that of a midcap index. Prolonged investments in midcap funds can help you earn optimal returns over the long term and assist to navigate the volatility better. Investors may consider mid-cap equity mutual funds only if you have a longer investment horizon and the ability to withstand the high market volatility and short-term losses.
IDFC Mutual Fund has launched IDFC Midcap Fund, it is an open-ended equity scheme predominantly investing in mid-cap stocks. The scheme with its unique 5 filter framework for stock selection offers investors an opportunity to benefit from the strong growth potential of the midcap companies over the long term.
Highlighting the rationale behind launching the IDFC Midcap Fund, Mr Vishal Kapoor, CEO at IDFC Mutual Fund said, “With the escalating inflationary pressures on the Indian economy, investors have realized the importance of investing in growth-oriented assets which could facilitate capital appreciation over the long term. The midcap segment demonstrates an opportunity for wealth creation over the years, a compelling risk-reward balance, and exhibits a broader sectoral representation compared to large-caps, thereby offering significant potential for growth with reasonable stability over the long term. IDFC Midcap Fund will provide investors with an opportunity to benefit from the robust growth potential of fundamentally strong mid-cap companies.”
Table 1: Details of IDFC Midcap Fund
| Type | An open-ended equity scheme predominantly investing in mid-cap stocks. | Category | Midcap Fund |
| Investment Objective | The fund seeks to generate long-term capital appreciation by investing predominantly in equities and equity-linked securities of the mid-cap segment. However, there is no assurance or guarantee that the objectives of the scheme will be realised. | ||
| Min. Investment | Rs 5,000/- and in multiples of Re. 1/- thereafter. Additional Purchase Rs 1,000/- and in multiples of Re. 1/- thereafter. | Face Value | Rs 10/- per unit |
| Plans |
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Options |
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| Entry Load | Not Applicable | Exit Load |
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| Fund Manager |
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Benchmark Index | S&P BSE 150 Midcap Index |
| Issue Opens: | July 28, 2022 | Issue Closes: | August 11, 2022 |
(Source: Scheme Information Document)
The investment strategy for IDFC Midcap Fund will be as follows:
The corpus of IDFC Midcap Fund will be invested in equity and equity-related products & debt and money market instruments.
The scheme seeks to capture opportunities available in the mid-cap segment. The fund shall invest a minimum of 65% of its corpus in the mid-cap space. The remaining portion will be invested depending on the market conditions and in line with the fund manager’s views. The scheme will follow an in-house investment strategy – a 5-filter framework for stock selection:
- Governance/Sustainability – Strong governance, capital allocation track record and sustainable business models enable us to take a long-term business view.
- Capital Efficiency – Structural opportunity for businesses to earn an optimal return on invested capital (RoIC) is the key to shareholder value creation.
- Competitive Edge – Clear value proposition for customers through cost/product differentiation leads to strong franchise network creation.
- Scalability – Availability of large market opportunities results in long-term earnings growth.
- Acceptable Risk/Reward – Buying businesses at the right price.
The emphasis would be on identifying high-quality companies in the mid-cap segment with better growth prospects, sound corporate management, and favourable risk-reward from a medium to long-term perspective. While selecting specific stocks, the fund manager will consider and evaluate amongst various criteria net worth, sustainable business models, consistent growth, strong cash flows, sound professional management, track record, industry scenario, growth prospects, market liquidity of the securities, etc.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation for IDFC Midcap Fund
| Instruments | Indicative Allocations (% of Net Assets) | Risk Profile | |
| Minimum | Maximum | High/Medium/Low | |
| Equity and equity-related instruments of Mid Cap companies | 65 | 100 | Medium to High |
| Equity and equity-related instruments other than Mid Cap companies | 0 | 35 | Medium to High |
| Overseas securities | 0 | 25 | Medium to High |
| Debt Securities and Money Market Instruments (including Government securities, and securitised debt) | 0 | 35 | Low to Medium |
(Source: Scheme Information Document)
The Scheme may participate in securities lending as permitted under the Regulations. Investment in overseas securities shall be made in accordance with the requirements stipulated by SEBI and RBI from time to time.
Who will manage IDFC Midcap Fund?
Mr Sachin Relekar, Mr Harshal Joshi and Ms Nishita Doshi will be the designated fund managers for this scheme.
Mr Sachin Relekar will be managing the equity portion of this scheme. He is a CFA and holds a Master of Management Studies (Finance) degree from Mumbai University and BE (Mechanical) from Shivaji University, Kolhapur. He has an overall experience of 20 years in the financial services industry. Prior to joining IDFC AMC, he was associated with LIC Mutual Fund Asset Management Limited as Chief Investment Officer (Equity) and Fund Manager, with Tata Asset Management Company Limited as a Research Analyst, tracking sectors such as Infrastructure, Automotive, Mining and Metals sectors.
At IDFC Mutual Fund, Mr Relekar currently manages IDFC Infrastructure Fund, IDFC Equity Savings Fund – Equity portion, IDFC Flexi Cap Fund, IDFC Large Cap Fund, IDFC Balanced Advantage Fund, IDFC Asset Allocation Fund of Fund – Aggressive Plan, Conservative Plan & Moderate Plan.
Mr Harshal Joshi will be managing the debt portion of this scheme. He has experience spanning over 14 years in Mutual Fund and holds a PGDBM degree. He has been associated with IDFC AMC since December 2008 with the Fixed Income Investment team. Prior to the same, he was associated with ICAP India Pvt. Ltd. (from 2006 to 2007).
At IDFC Mutual Fund, Mr Joshi currently manages IDFC Arbitrage Fund, IDFC Equity Savings Fund, IDFC All Season Bond Fund, IDFC Cash Fund, IDFC Ultra Short Term Fund, IDFC Government Securities Fund – Constant Maturity Plan, IDFC Low Duration Fund, IDFC Gilt 2027 Index Fund, IDFC Gilt 2028 Index Fund, Debt portion for IDFC Regular Savings Fund, IDFC Hybrid Equity Fund, IDFC Fixed Term Plans, IDFC Multi Cap Fund and IDFC US Equity Fund of Fund.
Ms Nishita Doshi will be managing the overseas investments of this scheme. She is a Chartered Accountant (ICAI), CFA Level III cleared (CFA Institute) and B.com graduate from Mumbai University. She has an overall experience of 5 years in the financial services industry. She has been working with IDFC AMC in the Equity Investments team, her role is analysing various sectors and is the dedicated fund manager for foreign securities. Prior to this, she was associated with Prabhudas Lilladher Pvt. Ltd. as a Research Associate. At IDFC Mutual Fund, Ms Doshi currently manages IDFC US Equity Fund of Fund.
Fund Outlook – IDFC Midcap Fund
IDFC Midcap Fund aims to predominantly invest in equities and equity-linked securities of the mid-cap segment. Through investment in mid-cap stocks, investors can fetch capital growth benefits as these can be potential future leaders in their industry segment.
The scheme will invest in a variety of mid-cap stocks across sectors which aids diversification and get access to wide opportunities with growth potential. Such investments can have higher chances of significant long-term gains and since the mid-cap segment is currently trading at a discount to its long-term average, investors can get more fund units at lower valuations.
The fund will adopt a 5 filter framework strategic investment approach by focusing on companies with high-quality management, companies that have better scalability, and companies that have a competitive market position. All these factors can aid the chances of positive long-term returns.
Although the scheme offers investors a diversified portfolio of relatively high-quality businesses within the midcap segment, investment in mid-cap stocks is highly risky. A portfolio of high-quality mid-sized companies leading the market with robust business models may hold the potential to become tomorrow’s large caps, but do note they are riskier than large-cap funds. The scheme being actively managed, the fund manager’s ability to construct the Midcap portfolio remains to be seen.
In addition, IDFC Midcap Fund may be prone to intensified market volatility in the near term due to the persistent repercussions of the Russia-Ukraine conflict, spiralling inflation and the RBI’s recent announcement to hike policy rates again by 50 basis points to curb demand and control inflation may cause a significant risk to the economic growth. Quality mid-cap stocks may deliver high returns, but they also exhibit high volatility, as they are more exposed to price corrections during an economic downturn or volatile market phase. These factors among many others could have a bearing on the scheme’s performance.
Thus, this scheme is suitable for savvy investors who understand the mid-cap market space and are willing to adopt the high-risk and high-return investment strategy. However, mid-cap and small-cap funds may not do well in the near future; you must invest in them only if you have a high-risk appetite and a long horizon of at least 5-7 years.
This article first appeared on PersonalFN here
