DSP Midcap Fund: Seeking Long Term Value Creators

Aug 05, 2021

Listen to DSP Midcap Fund: Seeking Long Term Value Creators

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As the Indian equity market continues to scale new highs, the mid-cap segment too has showcased a stellar performance. Outpacing its large-cap fund peers in the last couple of years, the outperformance of the mid-cap funds category is one of the highest among diversified equity funds.

However, do not ignore the risk associated with investing in mid-cap funds. Remember that the mid-cap segment can witness significant drawdowns during volatile market conditions, as witnessed during the mid and small-cap crash of 2016-18, and the most recent pandemic-induced market crash.

Moreover, when you invest in mid-cap funds, avoid investing in funds based on their short-term performance. Invest in funds that lay a strong emphasis on picking quality stocks and with a robust risk management system in place.

DSP Midcap Fund is one such mid-cap fund that stood strong in the recent market crash and has rewarded its investors reasonably well over longer periods of time.

Graph 1: Growth of Rs 10,000 if invested in DSP Midcap Fund 5 years ago

Launched in October 2006, DSP Midcap Fund has a track record of nearly 15 years to its credit. The fund focuses on high growth-oriented stocks in the mid-cap segment, available at fair and attractive valuations. DSP Midcap Fund adopts a well-balanced approach to investing and does not resort to taking aggressive calls. It maintains a diversified portfolio of quality stocks. This helps it in creating long-term wealth for investors. During the market crash of 2020, DSP Midcap Fund figured among those mid-cap funds that managed to efficiently contain the downside risk. However, DSP Midcap Fund has significantly trailed the benchmark and most of its peers in the current bull phase. Nonetheless, it has a superior track record of outperformance over longer time periods. In the last 5 years, DSP Midcap Fund has generated a compounded annualised return of 17.3%, compared to 15% CAGR delivered by its benchmark Nifty Midcap 100 – TRI. With this DSP Midcap Fund has outperformed the index by a CAGR of over 2 percentage points.

Graph 1
Data as on August 04, 2021
(Source: ACE MF)

Table: DSP Midcap Fund's performance vis-á-vis category peers

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year StdDev Sharpe
PGIM India Midcap Opp Fund 1,952 98.30 59.45 28.35 21.68 19.37 25.43 0.26
Quant Mid Cap Fund 110 89.88 51.25 25.49 20.57 17.56 24.38 0.25
Axis Midcap Fund 12,813 64.57 37.99 22.79 21.57 19.56 19.07 0.26
Kotak Emerging Equity Fund 14,133 81.64 39.61 21.22 19.24 21.62 24.54 0.22
BNP Paribas Mid Cap Fund 974 78.07 39.29 21.16 17.39 18.62 22.79 0.23
Invesco India Midcap Fund 1,706 68.12 38.85 20.21 19.62 19.76 22.51 0.22
SBI Magnum Midcap Fund 5,593 83.00 40.04 19.77 14.59 17.91 25.59 0.20
DSP Midcap Fund 12,869 57.97 34.08 17.70 17.26 18.85 21.67 0.19
Franklin India Prima Fund 7,695 71.86 28.78 15.03 15.03 17.56 23.69 0.15
HDFC Mid-Cap Opportunities Fund 29,508 72.95 32.48 14.84 16.13 17.74 24.83 0.15
Nifty Midcap 100 - TRI 80.03 34.37 14.48 15.03 15.60 27.45 0.15
Returns are point to point and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on August 04, 2021
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

Historically, DSP Midcap Fund has stood among the top performers in the mid-cap funds category on multiple occasions. It is important to note the fund has trailed the benchmark and most of its peers in the last one year. However, its long term record is encouraging. Over the longer time frames of 3-year to 7-year, it has outpaced its benchmark by a noticeable margin of around 2-3 percentage points. In tandem with this it has maintained a lead over many of its category peers.

Despite its affinity for higher returns, it has achieved the same at reasonable risk, thus rewarding its long term investors with superior risk-adjusted returns as well. The fund's volatility is among the lowest in the category and far lower than the benchmark. Meanwhile, its Sharpe ratio clearly outpaces the benchmark.

Investment strategy of DSP Midcap Fund

DSP Midcap Fund is a typical mid-cap fund that aims to invest in mid-sized companies that have immense growth potential. The fund house believes the companies in this space generally trade at a discount to their large-cap counterparts and could benefit from re-rating. The fund mainly follows the bottom-up approach of stock picking.

DSP Midcap Fund places higher emphasis on the company's fundamentals and price valuation when including a stock in the portfolio. It invests in companies with consistent earnings and significant growth potential. The fund managers give higher importance to quality and avoid inferior businesses. At times, the fund follows the top-down approach when the fund management foresees emerging investment opportunity in a particular sector or a theme.

While zeroing-in on holdings for the portfolio, the stocks are screened on parameters such as, future prospects of the company and the business, financial strength of the company, competitive edge, and quality of management, to name a few. DSP Midcap Fund aims to invest around 70% of its assets in high conviction mid-cap stocks with a maximum exposure of 3% to 6% in each of these ideas. It also invests nearly one-third of its assets in large-gap and small-cap stocks.

Graph 2: Top portfolio holdings in DSP Midcap Fund

Graph 2 Graph 2
Holding in (%) as on June 30, 2021
(Source: ACE MF)

DSP Midcap Fundusually holds a well-diversified portfolio spread across stocks and sectors. As on June 30, 2021, DSP Midcap Fund held a reasonably sized portfolio of 48 stocks. Popular mid-cap names like Balkrishna Industries, Max Financial Services, Mannapuram Finance, Supreme Industries, and Atul form part of its top holdings. Infosys and Cholamandalam Investment & Finance Company are the only large-cap names in the top 10 holdings. Some of these stocks have been in the portfolio for well over 2 years now.

Stocks like Cholamandalam Investment & Finance Company, Infosys, Balkrishna Industries, Atul, Supreme Industries, Max Financial Services, Emami, Voltas, Jubilant FoodWorks, among others have been the major gainers in the portfolio in the last one year. These stocks together contributed close to 25% to its returns during this period.

While DSP Midcap Fund holds a major allocation towards cyclicals, it is fairly diversified across defensive and sensitive sectors as well. Banking and Finance stocks have the highest exposure in the portfolio with a combined allocation of 20.4%. Engineering stocks follow closely behind with an allocation of 15.4%. Consumption, Auto Ancillaries, Consumer Durables, Pharmaceuticals, Infotech, Fertilisers, and Chemicals stand among the other core sectors in the fund's portfolio.


DSP Midcap Fund is a process-driven fund that has been agile enough to take advantage of various investment opportunities present in the mid-cap segment. It aims to invest in growth-oriented stocks but at the right valuations. The strategy has enabled it to perform consistently across market cycles, while keeping the risk low.

Mr Vinit Sambre is one of the fund managers of DSP Midcap Fund. He is a veteran in the mid and small-cap space and has been at the helm of this scheme for over nine years now. The fund managers keep a strong focus on the fundamentals and those stocks that are likely to be re-rated and benefit during the recovery phase.

DSP Midcap Fund has the potential to reward investors willing to remain invested in the fund for a long term. It is suitable only for investors with high risk tolerance and a long term investment horizon of at least 5-7 years.


Warm Regards,
Divya Grover
Research Analyst


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Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.


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