Mid Cap Funds are those that invest at least 65% of the corpus in companies ranking 101st to 250th in terms of market capitalisation. These companies have the potential to become the large-caps of tomorrow.

When investing in Mid Cap Funds, you should be aware of the risk and avoid one-time lumpsum investments. The market may trend downward or sideways for a few months or a few years; no one can say for sure. However, over the long-term of 5-7 years or more, there is a high probability of markets moving up. Thus, you should keep a long-term investment horizon and invest gradually in quality Mid Cap funds, preferably through a Systematic Investment Plan (SIP).

Kotak Emerging Equity Fund is one such well-managed Mid Cap Fund that has delivered benchmark-beating returns across market phases and has rewarded investors with superior risk-adjusted returns.

Graph 1: Growth of Rs 10,000 if invested in Kotak Emerging Equity Fund 5 years ago

Graph 1

Past performance is not an indicator of future returns
Data as on August 29, 2022
(Source: ACE MF)  

Launched in March 2007, Kotak Emerging Equity Fund is a midcap-biased fund that seeks to identify the hidden growth potential of mid-sized companies. The fund was primarily a mid and small-cap fund but was recategorised as a Mid-cap Fund to align with SEBI’s classification norm. It now holds a mid-cap biased portfolio, along with significant exposure to small caps and a balanced allocation towards large caps. Kotak Emerging Equity Fund stood strong in the 2018-19 mid-cap crash as well as the market crash of 2020, even as many of its peers struggled to keep pace with the market returns, thus turning out to be one of the top performers in the category. Even in the recent bull phase, Kotak Emerging Equity Fund stood among the top performers in the category though it trailed the benchmark index. With a compounded annualised return of around 17.2% over the past 5 years, Kotak Emerging Equity Fund has significantly outperformed its benchmark Nifty Midcap 150 – TRI index. Notably, the index has appreciated at 14.8% CAGR during this period. An investment of Rs 10,000 in Kotak Emerging Equity Fund 5 years back would have grown to Rs 22,130. Simultaneous investment in the benchmark would now be worth Rs 19,976 over the same period.

Table: Kotak Emerging Equity Fund’s performance vis-á-vis category peers

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
PGIM India Midcap Opp Fund 6,023 13.95 44.10 43.23 21.26 17.60 24.35 0.41
Quant Mid Cap Fund 621 21.77 45.17 39.15 21.87 17.01 24.39 0.36
SBI Magnum Midcap Fund 7,472 19.01 40.94 32.22 15.42 15.12 24.67 0.31
Mirae Asset Midcap Fund 8,115 11.32 37.04 31.31 24.54 0.30
Edelweiss Mid Cap Fund 2,108 13.30 36.58 30.91 17.37 16.29 24.68 0.30
Kotak Emerging Equity Fund 20,619 13.41 36.51 30.11 17.21 17.93 24.04 0.29
UTI Mid Cap Fund 6,891 9.02 32.11 29.11 14.72 13.83 23.59 0.29
Motilal Oswal Midcap Fund 2,919 28.12 40.14 29.10 15.58 14.59 25.21 0.28
Mahindra Manulife Mid Cap Unnati Yojana 965 11.85 33.52 28.53 22.80 0.28
Nippon India Growth Fund 12,450 11.77 33.95 27.94 15.84 15.61 24.59 0.27
Nifty Midcap 150 – TRI 12.39 33.88 28.30 14.83 16.43 25.94 0.28

Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on August 29, 2022
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

Kotak Emerging Equity Fund holds a superior track record of generating market-beating returns across most time periods. In the last 2-years, Kotak Emerging Equity Fund outpaced many of its peers and holds a spot among top category performers, whereas it has also outperformed the benchmark Nifty Midcap 150 – TRI by a noticeable margin. Over the longer 3- year and 5-year time frame, Kotak Emerging Equity Fund has generated a noticeable lead of around 2 percentage points over the category average and the benchmark. Whereas, over the 7-year period Kotak Emerging Equity Fund has topped the returns chart and stood ahead of the benchmark.

On risk-reward parameters, though the volatility registered by the fund is nearly in line with the category average, it is much lower than the benchmark index. Its Sharpe Ratio (0.29), signifying risk-adjusted returns, is much higher when compared to the category average as well as the benchmark.

Investment strategy of Kotak Emerging Equity Fund

Classified under the Mid Cap Fund category, Kotak Emerging Equity Fund is mandated to invest a minimum of 65% of its assets in mid-cap stocks. Accordingly, the fund holds a predominant mid-cap biased portfolio. It holds significant exposure across large-cap and small-cap stocks as well.

Kotak Emerging Equity Fund aims to identify the hidden potential of mid-sized companies by utilising the bottom-up stock selection approach. It seeks to invest in companies that are either at their nascent or developing stage and are under-researched but have the potential to deliver higher growth in the long term. The scheme aims to invest across sectors and follows a buy-and-hold strategy to derive the full potential of the stocks. Notably, the fund has had a very low portfolio churning rate of less than 10% in the last one year.

Kotak, as an AMC, endeavours to invest in stocks, which, in the opinion of the fund manager, are priced at a material discount to their intrinsic value. The process of discovering the intrinsic value is through in-house research supplemented by research available from other sources. The potential of stocks is guided by considerations such as the financial parameters of the company, the reputation of the management and their track record, companies that are less prone to recessions or cycles, companies that pursue a strategy to build strong brands for their products or services, market liquidity of the stock, and so on.

Graph 2: Top portfolio holdings in Kotak Emerging Equity Fund

Graph 2Graph 2

Holding in (%) as of July 31, 2022
(Source: ACE MF)  

Kotak Emerging Equity Fund usually holds a fairly large portfolio of stocks spread across sectors. As of July 31, 2022, the fund held as many as 71 stocks in its portfolio, with the top 10 stocks together constituting around 33.2% of its assets. Schaeffler India is currently the top holding in its portfolio having an allocation of about 4.8%, followed by Supreme Industries, SKF India, Cummins India, and Coromandel International, among others. Many of these stocks have been a part of its portfolio for over two years now.

In the last one year, Kotak Emerging Equity Fund benefitted the most from its holdings in Schaeffler India, Solar Industries India, Thermax, SKF India, Bharat Electronics, Cummins India, and Page Industries, among others.

In terms of sector, Engineering tops the list of allocation with an exposure of 22.6%, followed by Financial Services at about 12%. All other sectors have allocation well within the 10% mark. Consumer Durables, Fertilisers, Auto Ancillaries, Pharma, Construction, Consumption, Cement, and Metals are among the other core sectors in the fund’s portfolio. The top 10 sectors together account for around 74.6% of its assets. Though Kotak Emerging Equity Fund’s portfolio is inclined more towards Cyclicals and Sensitive sectors, it is fairly diversified to Defensive sectors as well.


Kotak Emerging Equity Fund has a successful track record of generating superior returns across most market phases. It has done exceptionally well in the past few years. The fund has stood strong during difficult market conditions and has participated well during upside market movements. Notably, its asset size has grown tremendously in the last couple of years driven by its superior performance. The fund is expected to continue with its stellar performance going forward.

Kotak Emerging Equity Fund carries an impressive track record under the supervision of Mr Pankaj Tibrewal, who is known for his expertise in the mid and small-cap space. The fund’s focus on identifying high-conviction quality stocks in the mid-cap space and holding it with a long-term view has worked in its favour. Moreover, the fund has delivered in terms of risk-adjusted returns.

Belonging to a process-driven fund house and managed by an experienced fund manager, Kotak Emerging Equity Fund is suitable for aggressive investors aiming for long-term wealth creation.

This article first appeared on PersonalFN here

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