HSBC Mid Cap Fund – Should you Invest in this NFO?

  1. HSBC Mid Cap Fund – Should you Invest in this NFOHSBC Mid Cap Fund – NFO Issue Details and Review

HSBC Mid Cap Fund NFO would open for subscription on 6th September, 2021. Midcap mutual funds invest in midcap stocks and are considered as high risk. Midcap category has been lagging behind its performance in the last couple few years. However, post covid-19 market crash, when the stock market recovery happened from Apr-2020, this segment started performing well. We could see massive run in Jun and July, 2021 too. However, we could see some correction happening now in this segment for the last 3 weeks. Should you invest in HSBC Mid Cap Fund NFO? What are the risk factors an investor should consider before investing in such midcap funds? Let me review this midcap fund and provide complete analysis in this article.

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What are Mid Cap Mutual Funds?

As the name indicates, Midcap Mutual Funds invest in Midcap stocks. Mid Cap stocks are categorized as companies that are considered from 101th to 250th company in terms of market capitalization. Many midcap stocks have turned to be multi-bagger stocks if invested for medium to long term.

HSBC Mid Cap Fund – NFO Issue Details

This is an open ended mutual fund scheme. Here the NFO issue details.

Scheme Opens 06-Sep-21
Scheme Closes 20-Sep-21
Scheme reopens for continuous purchase/sale 29-Sep-21
Minimum Lumpsum Rs 5,000
Minimum SIP Rs 1,000 for 6 months
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load Within 1 year – 1%
Risk Very High Risk
Benchmark NIFTY Midcap 150 Index TRI

HSBC Mid Cap Fund NFO Scheme Information Document (SID)

What is the investment objective of HSBC Mid Cap Fund NFO?

To seek to generate long-term capital growth from an actively managed portfolio of equity and equity related securities of predominantly mid cap companies.

However, there is no assurance or guarantee that the investment objective of the Scheme will be realized.

What is the allocation pattern in this mutual fund scheme?

This fund investment pattern is as follows:

Type of instruments Min % Max % Risk Profile
Equity and Equity related Instruments of midcap companies 65% 100% High
Equity and Equity related Instruments of companies other than midcap companies 0% 35% High
Debt and Money Market Securities 0% 35% Low to Medium
Units issued by REITs and InvITs 0% 10% Medium to High

Why should you invest in such Midcap Funds?

Here are a few reasons to invest in such schemes.

1) Midcap mutual funds invest in midcap stocks. There are several midcap stocks that would turn as multibagger stocks / largecap stocks in the medium to long term. Investors can get benefitted with higher returns.

2) Midcap is one of the categories of mutual funds that gave superior returns between 11% to 25% in the short, medium to long term (3 to 10 years). If you want to take risk and expect high returns, midcap funds could be the best bet for you.

3) High risk investors can diversify their portfolio by investing some portion in midcap mutual funds.

Some risk factors you should consider before investing in such funds

One should consider some of these risk factors / negative factors before investing.

1) Midcap funds invest in midcap stocks which are considered as HIGH RISK. Unless you are a high risk investor, you can should stay away from such schemes.

2) There could be under performance in the Midcap segment for various reasons, e.g. what we could see midcap segment under performance for 2017 to 2019. Investors should be willing to have patience in such case.

3) This fund invests up to 35% in debt instruments. Such debt instruments can contain investments with corporates (e.g., commercial papers). This segment has turned to be high risk due to defaults from corporates. For regular debt instruments, there is interest rate risk or price risk, liquidity risk, credit risk, pre-payment risk etc.,

4) Scheme may invest in derivatives instruments which are high risk.

5) This fund invests up to 10% in in REITS and InvITS which are high risk.

6) You can go through all risk factors indicated in the scheme related documents before investing.

How is the Performance of existing Mid Cap funds?

Here is the performance of current Midcap funds.

*Scheme NAme 3 Yrs 5 Yrs 10 Yrs
Axis Midcap Fund 19.7% 19.5% 20.4%
PGIM India Midcap Opportunities Fund 25.1% 19.1%
Quant Mid Cap Fund 20.0% 17.3% 14.2%
Edelweiss Mid Cap Fund 17.1% 16.7% 20.0%
Kotak Emerging Equity Fund 18.6% 16.5% 20.2%
Nippon India Growth Fund 18.1% 16.3% 16.7%
Invesco India Mid Cap Fund 15.4% 16.0% 18.4%
Tata Midcap Growth Fund 17.7% 15.7% 18.6%
DSP Midcap Fund 15.4% 15.0% 17.8%
L&T Midcap Fund 11.1% 14.7% 18.4%
Taurus Discovery (Midcap) Fund 12.9% 14.6% 17.1%
ICICI Prudential Midcap Fund 14.2% 14.5% 17.5%
BNP Paribas Midcap Fund 17.6% 14.2% 19.3%
Baroda Midcap Fund 14.7% 14.2% 6.7%
UTI Mid Cap Fund 16.7% 13.8% 19.0%
HDFC Mid-Cap Opportunities Fund 12.2% 13.5% 18.4%
Franklin India Prima Fund 12.6% 12.7% 18.7%
Motilal Oswal Midcap 100 Exchange Traded Fund 11.8% 12.4% 14.3%
SBI Magnum Midcap Fund 16.8% 12.1% 18.7%
Aditya Birla Sun Life Mid Cap Fund 10.8% 11.2% 15.4%
Motilal Oswal Midcap 30 Fund 10.8% 11.2%
Sundaram Mid Cap Fund 9.3% 10.5% 16.1%

*Annualised returns from regular plans are provided in absence of long-term returns data for direct plans.

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Should you invest in the HSBC Mid Cap Fund NFO?

This mutual fund scheme invests in the midcap stocks. This segment has generated high returns between 11% to 25% in the last 3 to 10 years. However, midcap funds are high risk. If you are a high risk investor and willing to invest for long term of 8-10 years, one can invest in such funds. If you do not want to test new funds, you can invest in some of the consistent performing midcap funds through SIP. Currently we could see some correction in midcap segment, hence investing through SIP could be better. One should avoid investing in lump sum in such schemes unless you are investing during the stock market crash. If you are moderate to low-risk investor, stay away from such schemes.

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Suresh KP

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