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It has been a rollercoaster ride for small and mid-cap stocks last year, even as bellwether indices Sensex and Nifty touched new highs after a strong election mandate. Is this the right time to buy beaten-down small- and mid-cap stocks? Some fund houses believe so.
Mirae Asset Mutual Fund has launched its mid-cap focussed fund. The new fund offer (NFO) is open for subscription till July 22, 2019. Investors have an option to invest in the scheme even after the NFO period, because it is an open-ended fund. The fund house believes there is significant potential in mid-cap stocks as they currently trade at a 20 per cent discount compared to their large-cap peers and have the potential to deliver good returns over the next three to five years.
The fund has a mandate to invest up to 65 per cent of its assets in mid-cap stocks. The remaining 35 per cent will be invested in large-cap and small-cap stocks.
The scheme is looking to capitalise on under-researched ideas in the mid-cap stocks which have the potential to achieve faster earnings growth. The fund shall invest in stocks across sectors and adopt a bottom-up approach in stock picking.
The scheme’s performance will be benchmarked to Nifty Midcap 100 Index TRI. The redemption made within one year from the date of investment will attract an exit load of 1 per cent.
How have they fared?
Over the past year, mid-cap stocks have seen reasonable erosion in value. For instance, the S&P BSE Midcap Index has shed over 4 per cent, even as Nifty Mid-cap 100 TRI was marginally down over the same period. Interestingly, BSE Sensex has gained over 7 per cent over the last one year. Over a three- and a five-year period, S&P BSE Mid Cap TRI generated 7.4 and 10.6 per cent gains respectively. In contrast, S&P BSE Sensex delivered 8.9 per cent and 10.3 per cent respectively.
There are 24 mid-cap oriented schemes available in the market. Over the past year, these schemes have posted a negative return of about 2.2 per cent on an average. Over a three- and a five-year period, they clocked 8.5 per cent and 12 per cent on an average. The schemes managed to deliver returns higher than not just the two mid-cap indices — S&P BSE Midcap and Nifty Midcap 100 TRI — but also outperformed the bellwether indices S&P BSE Sensex and Nifty 50.
While the fund is betting on the long-term potential in mid-cap stocks, the associated risk is also reasonably high compared to large-cap stocks. Hence, mid-cap funds may suit investors who have the appetite for high risk.
The writer is an independent financial consultant
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