Top 3 Midcap Funds for Long-Term Growth in India

Midcap mutual funds have demonstrated robust performance within Indian portfolios over the last five years, with Equitymaster highlighting three funds poised for long-term growth. WhiteOak Capital Mid Cap Fund, Edelweiss Mid Cap Fund, and Nippon India Growth Mid Cap Fund are noted for their distinct characteristics and returns.

The selection process for these funds focused on a quantitative score, evaluating rolling returns across 6-month, 1-year, 3-year, and 5-year periods. Risk-reward ratios, including standard deviation, Sharpe, Sortino, and up/down capture ratios, were also critical in the assessment.

Midcap Market Performance Overview

• The Nifty Midcap 150 TRI compounded at over 22% annually over both three-year and five-year rolling periods.

This strong index performance underscores the sector’s potential, making careful fund selection essential given the numerous available options.

WhiteOak Capital Mid Cap Fund

Launched in September 2022, WhiteOak Capital Mid Cap Fund has quickly established a strong track record. The fund significantly outperformed its benchmark across one and three-year rolling periods.

• AUM: Rs 68 bn, considered an advantage for midcap investing.
• Risk-adjusted returns: Favorable Sharpe and Sortino ratios.
• Volatility: Lowest standard deviation among the three funds.

However, its relatively short history means the fund has yet to navigate a sustained market downturn.

Edelweiss Mid Cap Fund

Edelweiss Mid Cap Fund boasts a longer operational history and consistent benchmark-beating performance. It surpassed its benchmark across all measured periods, from one year up to seven years.

• Seven-year rolling CAGR: Second-highest in its category.
• Risk-adjusted returns: Strong Sharpe and Sortino ratios.

Despite its consistent performance, the fund exhibits higher volatility compared to its peers, and its recent one-year performance was the softest among the three.

Nippon India Growth Mid Cap Fund

As the oldest fund on the list, launched in October 1995, Nippon India Growth Mid Cap Fund offers a long and uninterrupted record of outperforming its benchmark. It demonstrated consistent returns across all rolling periods, though it never topped the category.

• AUM: Rs 492 bn, a significant increase that raises concerns.
• Risk-adjusted returns: Mid-table Sharpe and Sortino ratios.

The substantial AUM growth prompts questions about the fund’s future ability to invest effectively in smaller mid-sized companies without impacting stock prices, potentially leading to a portfolio shift towards larger, more liquid stocks.

While all three funds have outperformed the Nifty Midcap 150 TRI in available data periods, investors must exercise caution. The observed figures stem from an exceptional period for midcaps and should not be considered long-term expectations for future returns.

Comparative Snapshot

• WhiteOak and Edelweiss rank higher in risk-adjusted returns.
• Nippon India Growth’s primary strength lies in its long-term consistency.

Selecting the appropriate midcap fund requires a nuanced understanding of its track record, risk profile, and the manager’s ability to navigate market cycles, especially as new funds may show inflated Sharpe ratios due to limited historical data.