The Mutual Fund Show: Can Mid-Cap Schemes Fetch High Returns?
Investors considering a five-year SIP in mid caps should prepare for volatility. However, those opting for a seven-year SIP may find themselves in a more secure position, say experts.
Investors should consider exploring mid caps as a category, according to Anant Ladha, founder of InvestAajForKal. "We must rationalise our expectations for returns, as currently investors are anticipating returns of over 20%," he said.
In the next two years, there could be some fluctuations and instability in this sector (mid-cap), making it an opportune time for investing in SIPs. However, if you are considering investing lump sum in this sector, it is advisable to reconsider and evaluate it from a valuation standpoint as well, advised Ladha.
The period when fund managers struggle the most is when they do not observe adequate corporate earnings, according to Satish Mishra, fund manager at Tata Mutual Fund.
In terms of challenges that a fund manager faces, he said, "Currently, corporate earnings are not strong. So, life is not very challenging at the moment. Some challenge arises from the valuation perspective."
Returns And Selection Of Funds
When considering returns, it is important to connect them to the broader economic context. Over a 5-10 year time frame, and in light of India's focus on manufacturing policy, it is anticipated that the earnings growth within this sector will experience a modest increase of 13-15%, Mishra said.
"Given the current circumstances, it is likely that there will be a favourable outcome rather than a negative one, in terms of the returns that investors can anticipate from mid-cap indices," he said.
According to Ladha, investors considering a five-year SIP should prepare for volatility. However, those opting for a seven-year SIP may find themselves in a more secure position.
He listed three important points to consider while selecting a fund:
Select consistent performer fund, not the best performer.
Always look for rolling returns.
Check down-capture ratio.
How Much Time To Give Before Switching Out Of Mid Caps?
"Your average SIP duration should be 1,400 days, provided the basics of the fund have not changed. You should at least give that much time to your fund manager before switching," said Ladha.
According to Mishra, "Your time frame must exceed five years. Individuals should only consider entering this category if they have a long-term outlook."
Query 1: I have Rs 20,000 SIP in the Axis Bluechip Fund. I can additionally invest Rs 3,000 in a new fund for a long-term horizon. Which fund can you suggest for me?
Name: Vaddi Pavankumar | Age: 34 years
Anant Ladha: He is right on track. The money will definitely reach Rs 50 lakh in 10 years' time. He can add on a Multi-cap fund or switch to a Multi-cap fund for better exposure, as currently both his funds are large-cap funds. For example, ICICI Multi-cap or Kotak Multi-cap.
Query 2: I want to start an SIP of Rs 50,000 to generate a corpus of Rs 5 crore in the next 10 years. Do I need to change my investment amount to achieve the goal? Can you recommend a few schemes?
Name: Deepak Manhas | Age: 39 years
Anant Ladha: He must invest Rs 2.15 lakh in SIP to reach Rs 5 crore in 10 years, or he must extend the time horizon to 20 years. Considering the portfolio he intends to create, he can opt for an index fund, a multi-cap fund, a small-cap fund, and allocate some funds to equity savings or balanced advantage fund.
Query 3: I can invest Rs 10 lakh as SIP in mutual funds, and I am expecting 25% returns over the next 10-15 years. What schemes can you suggest for me?
Name: Shivam Agarwal | Age: 34 years
Anant Ladha: First, he must adjust his return expectations. He has the option to invest in small-cap, mid-cap, and multi-cap funds. Additionally, he should allocate some funds to BAF or equity savings (fund).
