HDFC Mid Cap Fund: Stellar 20% 5-Year Return & Outperformance

The HDFC Mid Cap Fund, launched on June 25, 2007, has recorded a robust 20% return over the last five years, ranking as the second-highest performing mid-cap fund in this period. It holds a 5-star rating from ValueResearch and a 4-star rating from Morningstar, consistently outperforming its benchmark and category average over longer durations.

Performance Snapshot

• Last three months return: 8.06% (benchmark 5.52%, category 8.19%)
• Last three years return: 19.45% (benchmark 18.74%, category 18.52%)
• Highest yearly return (last decade): 44.47% in 2023
• Negative return: 11.20% in 2018

Chirag Setalvad, Head of Equities at HDFC AMC, attributes the fund’s consistent performance to a focus on high-quality businesses and a long-term compounding strategy. This approach involves careful selection of companies with durable competitive positions, prudent capital allocation, and strong cash generation.

Strategic Investment Pillars

• Investing in well-executing management teams whose interests align with minority shareholders
• Maintaining a margin of safety by avoiding overvalued companies
• Investing in industries facing temporary challenges

Bharath Rathore, Executive Director at Anand Rathi Wealth Limited, noted the fund’s 4% alpha over the category average and nearly 3% over its benchmark. He stated this was driven by high-conviction stock selection and a buy-and-hold approach, evidenced by a low portfolio turnover ratio of 0.02x in July 2026.

Fund Overview (as of July 31, 2026)

• Assets Under Management (AUM): Rs 1.05 lakh crore
• Largest mid-cap fund and third-largest active fund overall
• Portfolio turnover ratio: 0.02x in July 2026

The fund’s asset allocation as of July 31, 2026, included 10.39% in large caps, 65.11% in mid caps, 17.56% in small caps, and 6.93% in other assets. Despite its substantial size, experts like Rathore do not believe it inherently hinders long-term performance, though it might face constraints in smaller investment opportunities.

Key Sector Overweights

• Banking: 15.79%
• Automobile & Ancillaries: 15.41%
• Healthcare
• IT
• FMCG
• Crude Oil (compared to mid-cap category average)

Post-market correction, valuations in mid and small-cap segments are now considered more reasonable, supported by strong Q1 FY27 earnings growth of 30% for mid-caps and 38% for small-caps. Investors with a long-term horizon of three to five years are advised to maintain a diversified equity portfolio, with a 55:23:22 mix across large, mid, and small caps, while avoiding excessive allocation to mid and small caps due to their historical volatility.