Motilal Oswal Mid Cap Mutual Fund has gained popularity in the recent past due to its returns.
This can be attested by the surge in its AUM.
Unfortunately retail Indian investors are still swayed by recent returns, a criterion which should be allotted less weightage.
Unlike most mid cap mutual fund schemes, Motilal Oswal midcap fund follows a cyclical and focused approach as opposed to a buy and hold approach.
There’s also a hint of momentum investing in the mix.
Fund | Motilal Oswal Mid Cap |
Category | Mid Cap |
AUM (Rs Cr) | 34748.90 |
Fund Manager | |
Benchmark |
What is a Mid Cap Mutual Fund Scheme?
A mid cap mutual fund needs to invest a minimum of 65% into mid cap companies at all times.
These include companies between 101 to 250 in terms of market capitalization.
Some mid cap mutual funds invest the remaining 35% into mid cap companies too whereas others prefer to use large cap stocks for the remaining 35% for downside protection.
Therefore, knowing your risk profile and aligning it with the mid cap fund that follows a strategy aligned with your risk profile is important.
Mid cap mutual funds are more aggressive than large and flexi cap mutual funds but also have more potential for higher returns.
Click here to read about the comparison between focused and flexi cap mutual funds
What is Motilal Oswal Midcap Fund strategy?
Motilal Oswal midcap fund has several qualities that distinguishes it from its peers.
Some of those are:
- Having a focused approach
- Being cyclical in nature
The above qualities make the fund stand out in most times, both positive and negative but this very approach also makes the fund very volatile.
Volatility for a mid-cap fund is not unheard of but in reality, this very volatility does not necessarily translate to higher returns when compared to its peers when viewed in a long-term horizon.
The fund’s non index hugging approach can be better understood by the sectoral allocation.
Sector | Motilal Oswal Midcap Fund | Category Average |
Technology | 34.73 | 11.45 |
Consumer Discretionary | 27.26 | 13.21 |
Healthcare | 1.69 | 9.98 |
Motilal Oswal Midcap Fund comparatively takes a focused approach even when not required, meaning it holds a limited number of stocks.
The top 5 midcap funds in terms of AUM have been considered for the table below.
Scheme | Holdings |
73 | |
62 | |
95 | |
58 | |
94 | |
Motilal Oswal Midcap Fund | 17 |
Motilal Oswal Midcap Fund has a cyclical approach and therefore timing your exit from the fund as and when required can get extremely tricky.
This is because the fund deviates from the index and does not necessarily go in sync with the overall market and index sentiment.
Motilal Oswal midcap fund portfolio
The fund has only 17 holdings which is in stark contrast to most other midcap funds.
Bear in mind that this is not a focused fund so there is no obligation as such to hold 30 stocks or such, it is a strategy deliberately applied.
The fund has more than 3 times the category average weight in Technology and double for Consumer Discretionary.
Sector | Motilal Oswal Midcap Fund | Category Average |
Technology | 34.73 | 11.45 |
Consumer Discretionary | 27.26 | 13.21 |
IT as a sector has not had a great month which is reflected in the performance of the fund for the same period as well.
This is usually the case for schemes with are heavy on a particular sector, the opposite of it can also be the case from time to time.
So if IT as a sector does well, the fund by default would do well.
Motilal Oswal Midcap Fund has both a cyclical as well as a focused approach and therefore it can be quite volatile for prolonged periods.
This can be further ascertained by its high turnover ratio.
Scheme | Turnover Ratio |
HDFC Midcap | 14.39 % |
Kotak Midcap | 30.94% |
Nippon Midcap | 6 % |
SBI Midcap | 38 % |
Axis Midcap | 40 % |
Motilal Oswal Midcap Fund | 130 % |
Click here to read about Stepup SIP & why you must consider it
What is a portfolio turnover ratio?
A turnover ratio basically tells you the extent to which your portfolio has been churned.
You must have often read and been told to stick long term with your equity investments so you must be probably wondering why does the fund manager does not do the same.
It is because they are much better at that than us and also a high turnover ratio is not exactly a bad thing.
It is higher for schemes like value and contra and lower for the rest.
Since Motilal Oswal Midcap Fund has a cyclical approach, a high portfolio turnover ratio should not surprise anyone.
As an investor what you need to ask yourself is whether you are comfortable with such an approach cause in the long run such an approach does not necessarily create extra alpha.
Should you invest in Motilal Oswal Midcap Fund?
As previously mentioned, the fund has a cyclical approach while being index agnostic.
So depending upon when you look at the returns, it can either be extremely positive or negative.
This extremity averages out in the long run, meaning this approach does not necessarily translate to returns that outmatches its peers.
The mid cap space by default is a volatile one so adding to the volatility when long term returns do no necessarily translate to chart topping results might seem a bit unnecessary.
It is important to consider long term returns and not short term for two reasons, one it is equity and two it is about mid caps.
This is not to cast a shadow on the strategy applied since every fund house and manager will have a strategy of their own but as an investor you need to evaluate whether the said strategy is aligned with your risk profile.
As a retail investor the risk reward ratio is not favourable when there are far more stable and simpler options available.
If for whatever reason you find the approach exciting then you might need to review not only your decision to invest in the fund but in equity overall for equity investing should be boring and not exciting.
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