The average return of the mid-cap mutual fund category during the last one year has been 63 per cent. These returns have been 15 to 18 per cent in 5 and 10 years, respectively. The risk-reward ratio at this stage has been in favor of risk-averse investors. At the same time, the CAGR of large cap funds has been 15 percent in this period. This week, the market has started showing weakness from Monday and is trading below the all time high. So, can one expect returns like before from mid cap funds?
Don’t invest by looking at past performance of mid cap funds
Amit Jain, co-founder and CEO, Ashika Wealth Advisors, says that in the last three years, the CAGR of large cap funds has been 15 per cent, while mid cap funds have generated a CAGR of 19 per cent. This is the past performance of midcap funds, so investors should not expect returns based on this in future also. However, going ahead, the Nifty50 Nifty Midcap 100 has very limited opportunities from the current levels. Especially in terms of value investment in the broader market at the current level. Such a return on investment (ROI) can be given in a very low scheme in the short term.
Prateek Pant, Chief Business Officer, White Oak Capital Management, says that if the growth of mid-cap companies is seen in the last decade, then in the long term, the market can give returns on the line of nominal GDP and dividend yield. India’s nominal GDP rate may remain in double digits (lower tens level).
What should mutual fund investors do?
Pant says that as an investor you have to invest in large, mid and small caps with a balance. Along with this, keep reviewing your portfolio and see that the allocation from your fund is according to you. Pant says that there may be alpha generating opportunities in mid and small caps but it has to be kept in mind that mid and small caps will have more volatility than large caps. Therefore, before the final allocation, definitely consult your investment advisor and invest according to your investment goal.
Do not invest in multiple schemes at the same time
It is seen many times that when mid cap funds start performing well, investors start adding more such funds to their portfolio. It is difficult for a regular investor to keep track of multiple schemes of the same type. Later it gets complicated from the tax point of view as well. Before investing in any new scheme, select the top three sectors and go through the top ten holdings of the new fund. Check if your existing schemes have similar exposures to one of these funds.
What to do next?
When the market is at all-time high, it is showing further stagnation or it seems to be going down, then invest in selected sectors and stocks only. You can find some such stocks in auto, auto ancillary, bank and PSU sectors which can give value. That is to say, both large and midcap stocks can see price and time correction. Any new investor who is entering the market at this time will have to take a view of three years or more. The longer your investment is in the market, the higher will be the potential for adjusted risk returns.
(Article: Sunil Dhawan)
(Funds in the story are the advice of financial advisors. Financial Express Online assumes no responsibility for the same. Investments in capital markets are subject to risks. Please consult your advisor before investing.)
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