Midcap Funds vs Nifty Midcap 150 – Do Active Funds Really Beat the Index?

2 comments

If you’ve dipped your toes into investing, you’ve probably heard about midcap funds and the Nifty Midcap 150 Index. Both revolve around the same set of companies: those sitting comfortably between large caps and small caps. But the real question you want answered is this: should you trust a fund manager to pick the right midcaps for you, or should you just ride the index? This comparison matters because it directly impacts your returns, costs, and how much coffee you’ll need when the market goes bumpy. Let’s break it down so you can decide what works for you.

What is Nifty Midcap 150?

When you’re investing, large caps often feel too safe and small caps too risky. That’s where the Nifty Midcap 150 comes in. It’s a mix of 150 companies ranked between 101 and 250 on the NSE by market value. The selection is based on factors like free-float market capitalisation and liquidity, so only actively traded and scalable businesses cut.

If you’re aiming for a balance of stability and opportunity in your portfolio, this index can give you that sweet middle ground.

Midcap Funds vs Nifty Midcap 150 - Do Active Funds Really Beat the Index

What are Midcap Mutual Funds?

Midcap mutual funds invest primarily in stocks of mid-sized companies. Unlike the index, where everything is included based on preset rules, a fund manager carefully handpicks stocks. They might avoid weak businesses, overweight stronger ones, or time their entry and exit to maximise returns.

As an investor, this means you’re paying for expertise and judgment. Popular examples in the category include HDFC Midcap Opportunities Fund, Kotak Emerging Equity Fund, and Motilal Oswal Midcap Fund. Each fund carries its own strategy, philosophy, and, of course, performance record.

Active vs Passive: Performance Comparison

When you look at midcap investing, you’ll often find yourself deciding between active funds and simply riding along with the Nifty Midcap 150. Active funds give fund managers the freedom to handpick businesses they believe will grow faster than the market. The Nifty Midcap 150, on the other hand, just mirrors the broader universe without selective judgment.

In practice, the results have been mixed. There are stretches where certain active midcap funds have comfortably beaten the index, especially when managers identified quality companies early. At the same time, there have also been phases where the index itself has edged ahead, reminding you that even experts don’t always get it right.

For example, the Motilal Oswal Midcap Fund has consistently delivered higher returns than the benchmark. With around 28% annualised returns over 3 years and almost 34.5% over 5 years, this shows how skilled active management can create extra value for long-term investors.

Factors Influencing Outperformance/Underperformance

  1. Stock Selection & Fund Manager Expertise: A good fund manager doesn’t just follow the herd. They identify quality companies early and stay invested. If they get it wrong, though, your returns take a hit.
  2. Expense Ratios: Active funds charge more. Index funds are cheaper. Over long horizons, costs eat into your wealth more than you realise.
  3. Market Cycles: Active managers shine in volatile or sideways markets because they can avoid duds. But in a broad bull run, even weaker companies rise with the tide, making the index look just as good.

Should You Choose Active Midcap Funds or Index Funds?

  1. Active Midcap Funds: Great if you’re okay paying a higher fee for expert stock selection and the chance of extra returns. Best suited if you believe in the fund manager’s track record.
  2. Index Funds: Perfect if you want simplicity, lower cost, and no fund manager risk. You won’t get selective filtering, but you also won’t lose sleep wondering if your manager is picking the wrong stocks.

If you’re a beginner, index funds are a safe, low-maintenance option. If you’re experienced and willing to take calculated risks, mixing active funds with an index allocation could give you the best of both worlds.

Conclusion

So, do active midcap funds really maintain an edge over the Nifty Midcap 150? The reality is nuanced. At times, active funds have outperformed the index when managers spotted strong businesses early, but there have also been phases where the index held its ground better.

The key takeaway for you is not about choosing one side blindly but about understanding how each approach fits your financial goals and risk tolerance. If you prefer professional judgment, active funds may appeal to you. If you like transparency and lower costs, passive exposure makes sense. Ultimately, striking a balance that reflects your comfort level is the smartest move.

Suresh KP
Latest posts by Suresh KP (see all)
Tagged with , , ,

2 comments

  1. Dear Suresh ji,
    very studied analysis, salute to your dedication, I learnt lot from your daily articles.
    Warmly,
    Sanjeev

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *