Should You Add Mirae Asset Midcap Fund To Your Portfolio?
Jul 19, 2019

Author: Aditi Murkute

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Mirae Asset Mutual Fund launched the Mirae Asset Midcap Fund, an open-ended equity scheme that will invest predominantly in midcap stocks.

As per SEBI's categorisation norms, an equity-oriented  scheme is characterized as a midcap fund only if it invests a minimum of 65% of its total corpus in equity & equity related instruments of midcap stocks (i.e. companies from 101st to 250th on full market capitalisation basis)

The fund house is of the view, that midcaps are under-researched and that their overall alpha may be high if identified early and has the dual advantage of:

  • Higher earnings growth;

  • Potential P/E multiple expansion.

Hence the fund house launched, MAMF to capture the growth within the midcap segment as they have a potential to be future large caps and less volatile than small-caps but high growth potential. But being an equity scheme this fund does carry extreme risk. On the risk-return spectrum, it is placed below Small-Cap and Thematic funds.

[Read: How to evaluate your risk appetite and risk tolerance level?]

Thus, invest if you have the stomach for moderately high-risk appetite and investment time horizon of at least 5 years, then you may skew your equity portfolio to a Midcap fund.

Table 1: Details of Mirae Asset Midcap Fund

Type An open-ended equity scheme predominantly investing in mid-cap stocks. Category Mid Cap Fund
Investment Objective To provide long-term capital appreciation from a portfolio investing predominantly in Indian equity and equity-related securities of midcap companies. From time to time, the fund manager may also participate in other Indian equities and equity-related securities for optimal portfolio construction.

There is no assurance that the investment objective of the Scheme will be realized.
Min. Investment Rs 5,000 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
Plans • Regular

• Direct
Options • Growth*

• Dividend (Pay-out and Reinvestment)

*Default option
Entry Load Nil Exit Load
  • If redeemed within 1 year (365 days) from the date of allotment: 1%
     
  • If redeemed after 1 year (365 days) from the date of allotment: NIL
Fund Manager Mr Ankit Jain Benchmark Index NIFTY Midcap 100 (TRI Index)
Issue Opens: 08/07/2019 Issue Closes: 22/07/2019
(Source: Scheme Information Document)


How will the scheme allocate its assets?

Under normal circumstances, it is anticipated that the asset allocation of MAMF will be as follows:

Table 2:MAMF 's Asset Allocation

Instruments Indicative Allocation (% of Total Assets) Risk Profile
Minimum Maximum
Equities and equity related securities* of midcap companies** 65 100 High
Equities and equity-related securities other than above 0 35 High
Money market instruments/debt securities, Instruments and/or units of debt/liquid schemes of domestic Mutual Funds 0 35 Low to Medium
*Equity and Equity related instruments include convertible debentures, equity warrants, convertible preference shares, equity derivatives etc. Debt instruments include securitized debt up to 20% of corpus.
The scheme can invest up to 50% of Net Assets of Scheme into equity derivative instruments for the purpose of trading, hedging and portfolio rebalancing. However, the aggregate exposure to gross derivatives, debt instruments, money market instruments and equity will not exceed 100% of the net assets of the scheme.
The Scheme will not participate in stock lending more than 20% of total Net Assets of the Scheme and would limit its exposure regarding stock lending for a single intermediary to the extent of 5% of the total net assets at the time of lending.
The Scheme may invest in repo/reverse repo in corporate bonds. The gross exposure of the scheme to 'corporate bonds repo transactions' shall not be more than 10% of the net assets of the concerned scheme.
The scheme shall not engage in short selling and credit default swaps. The scheme shall not invest in any unrated debt instruments. The scheme will not advance any loans. The scheme does not intend to invest in foreign securities.
The cumulative gross exposure to money market instruments, debt instruments will generally not exceed 35% of the Net Assets of the Scheme. However, cash or cash equivalents with residual maturity of fewer than 91 days shall be treated as not creating any exposure.
** The investment universe of "Large Cap" "Mid Cap" and "Small Cap" shall comprise companies as defined by SEBI from time to time. As per SEBI circular (SEBI / HO/ IMD/ DF3/ CIR/ P/ 2017/ 114) dated October 6, 2017.
• Large Cap: 1st -100th company in terms of full market capitalization
• Mid Cap: 101st -250th company in terms of full market capitalization
• Small-Cap: 251st company onwards in terms of full market capitalization
For the purpose of determining these companies, the list of stocks prepared by AMFI in this regard, which would adhere to the SEBI guidelines, will be used. The list would be updated by AMFI every six months based on the market data as on the end of June and December of each year.
(Source: Scheme Information Document)

What will be the Investment Strategy?

As per investment objective, the Mirae Asset Midcap Fund will follow a predominantly Midcap strategy with a minimum exposure of 65% to Mid-Cap equity and equity-related instruments. The Scheme may also seek participation in other equity and equity-related securities to achieve optimal portfolio construction.

The Fund Manager will select equity securities on bottom-up, stock-by-stock basis. The focus would be to build a portfolio of strong growth companies, reflecting our most attractive investment ideas at all points of time.

[Read: Two Approaches To Portfolio Construction Followed By Fund Managers]

The universe of stocks will comprise majorly of companies having robust business models, enjoying sustainable competitive advantages as compared to their competitors and have high return ratios.

The Fund Manager will create a robust portfolio to avoid concentration risk and liquidity risk. The Fund Managers will monitor the trading volumes in a particular stock before investment to avoid liquidity risk.

Who will manage the Mirae Asset Midcap Fund?

The Mirae Asset Midcap Fund will be managed by Mr Ankit Jain.

Mr Jain has a bachelor's degree in Engineering with a specialisation in Information & Communication Technology, from DAIICT, Gandhinagar and has done MBA in Finance from NMIMS University, Mumbai. Before joining Mirae Asset Management Company Ltd, he was associated with Equirus Securities Pvt Ltd. and Infosys Ltd.

Some of the other equity schemes Mr Jain manages at the fund house are Mirae Asset Emerging Bluechip Fund and Mirae Asset Great Consumer Fund.

The outlook for Mirae Asset Mid Cap Fund

In an endeavour to achieve the stated objective of the scheme, the fund manager will construct a diversified portfolio predominantly of midcap stocks (65% asset allocation) along with approximate 35% exposure to small-cap and large-cap stocks. This flexibility of investing in large-cap stocks shall aid in managing volatility and aid reasonable liquidity.

Note that, midcap and small-cap stocks give the investor an opportunity to go beyond the usual large-cap stocks and may provide possible higher capital appreciation. But midcap and small-cap stocks may be riskier and more volatile on a relative basis. Therefore, the risk levels of investing in midcap and small-cap stocks are more than investing in stocks of large well-established companies.

Currently, equity markets have been in a tailspin, on account of the Budget announcements, weak consumer demand (indicated by the recent figure 3.18% shared by MOSPI) and liquidity constraints, the top-lines of consumption-driven companies have been hurt and so have the operating profit been impacted due to cost pressures and stiff competition.

Although the market corrections provide an opportunity to do some value buying but valuations aren't cheap. The trailing 12-month P/E of the S&P BSE Sensex is hovering around at 28x and the S&P BSE Midcap Index, which rallied before Modi 2.0's full budget, is now at 26x.

[Read: The Best Mid-Cap Funds For 2019]

Up ahead the markets brace up for the results season, and the corporate earnings need to start justifying the valuations, Strategically, given that equity markets could be volatile after the general election results, market valuations seem stretched, and now that Modi 2.0's full budget hasn't impressed the market much.

[Read: How Modi 2.0's Full Budget Impacts Your Finances]

Hence, the fortune of the Mirae Asset Mid Cap Fund would closely be linked to how the fund manager plays the investment strategy in the endeavour to accomplish the stated investment objective.

[Read: Best SIPs To Invest in 2019]

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This article first appeared on Certified Financial Guardian.  


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