Midcap mutual funds have been among the biggest wealth creators for investors over the last decade. However, investors are increasingly noticing that Motilal Oswal Midcap Fund has significantly lagged many of its peers in recent performance periods despite having a strong long‑term brand recall. Is this underperformance a temporary phase, or is there something structurally different about the fund’s strategy? In this detailed analysis, we compare Motilal Oswal Midcap Fund with its peers using recent performance data and decode the real reasons behind the underperformance.
Investors can also read about our earlier article 10 Mutual Funds That Delivered 50% to 187% Returns in 1 Year (2026 Edition).
About Motilal Oswal Midcap Fund
- AUM: ₹34,432 crore
- Category: Midcap Fund
- Investment Style: High conviction, concentrated portfolio
- Benchmark: Nifty Midcap 150 TRI
The fund follows Motilal Oswal AMC’s well-known ‘Buy Right, Sit Tight’ philosophy, focusing on long-term compounding through select high-quality businesses.
Performance Comparison vs Peers
Below is a comparison based on the data shared. Data is as of 1-Mar-2026.
| Fund | 1Y | 2Y | 3Y | 5Y | 10Y |
|---|---|---|---|---|---|
| HDFC Mid Cap Fund | 22.8% | 13.7% | 27.5% | 23.6% | 21.0% |
| Nippon India Growth Mid Cap | 24.2% | 15.6% | 28.2% | 23.6% | 21.4% |
| Edelweiss Mid Cap Fund | 23.3% | 16.7% | 28.4% | 23.2% | 21.7% |
| ICICI Prudential Midcap Fund | 32.8% | 16.8% | 28.3% | 22.0% | 19.6% |
| Kotak Midcap Fund | 24.5% | 16.4% | 23.5% | 20.8% | 21.2% |
| Motilal Oswal Midcap Fund | 0.3% | 8.7% | 22.2% | 23.8% | 18.8% |
Key Observation
- Severe underperformance in 1-year returns.
- Noticeable lag even in 2-year performance.
- Long-term (5Y) returns remain competitive.
This clearly indicates a recent cycle-driven underperformance, not necessarily a long-term failure.
Do you know that this fund is part of 8 Best Mutual Funds to invest in 2026 as per ChatGPT.
Why Motilal Oswal Midcap Fund is Underperforming?
1️⃣ Highly Concentrated Portfolio Strategy
Unlike diversified midcap funds holding 60–80 stocks, Motilal Oswal Midcap Fund typically runs a concentrated portfolio with fewer stocks.
Impact:
- Outperforms strongly when chosen stocks do well.
- Underperforms sharply when few holdings lag.
In the recent rally, broader midcap participation helped diversified funds outperform.
2️⃣ Style Bias Toward Quality Growth Stocks
The fund focuses on high-quality, earnings visibility companies rather than cyclical or momentum-driven stocks.
However, the recent market phase rewarded:
- Capital goods
- PSU-linked themes
- Manufacturing cyclicals
Funds like ICICI Prudential Midcap and Invesco India Mid Cap captured these trends better.
Style-based underperformance is common across mutual fund categories. See our related analysis: Why Parag Parikh Flexi Cap Fund is Underperforming
3️⃣ Limited Participation in Momentum Rally
Many peer funds actively rotated portfolios to capture short-term opportunities.
Examples:
- ICICI Prudential Midcap Fund delivered 32.8% 1Y returns.
- Nippon India Growth Mid Cap delivered 24.2%.
Motilal Oswal Midcap Fund remained relatively stable in holdings, leading to lower upside capture.
4️⃣ Buy-and-Hold Philosophy During Fast Markets
The AMC follows a disciplined long-term investing approach.
While this works well over full cycles, fast-moving bull markets often reward tactical allocation changes — something aggressive peers executed better.
5️⃣ Stock-Specific Performance Drag
In concentrated portfolios, even a few underperforming stocks can significantly impact returns. Diversified peers diluted stock-specific risks across multiple holdings.
Example: Impact of Kalyan Jewellers Holding
- Motilal Oswal Midcap Fund had a high conviction allocation (~6–9%) to Kalyan Jewellers at various periods.
- The stock witnessed sharp price corrections and volatility, leading to short-term NAV pressure.
- In a concentrated portfolio, even a single large holding correction can meaningfully drag returns compared to diversified peers.
- A ~25% decline in a high‑weight stock can alone reduce fund performance noticeably.
- The correction was largely sentiment and profit-booking driven, while long‑term business outlook remains constructive as per brokerage commentary.
This highlights how conviction-driven strategies can temporarily underperform when a few large bets go through correction phases.
6️⃣ Market Cycle Favored Breadth Over Conviction
Recent midcap rallies were broad-based rather than leadership-driven. Funds with wider exposure benefited more compared to conviction-heavy strategies.
Examples Where Peers Outperformed
ICICI Prudential Midcap Fund
- 1Y return: 32.8%
- Tactical sector rotation helped capture rally.
Invesco India Mid Cap Fund
- Strong participation across multiple sectors.
- Balanced diversification supported consistent alpha.
Nippon India Growth Mid Cap Fund
- Aggressive allocation and wider participation in midcap rally.
Meanwhile, Motilal Oswal Midcap Fund stayed aligned to long-term conviction bets.
Does Underperformance Mean Investors Should Exit?
Not necessarily.
The fund’s 5-year CAGR of 23.8% remains among the strongest in the category, showing that long-term compounding capability is intact. This fund is even featured few months in 13 Best Mutual Funds Rated 5-Star by Value Research (30%+ CAGR in 5 Years).
Short-term underperformance is common in concentrated strategies.
When Motilal Oswal Midcap Fund Typically Outperforms
This fund tends to perform well when:
- Market leadership narrows to quality companies
- Earnings-driven rallies dominate
- Valuation discipline becomes important
Such environments favor high-conviction portfolios.
Important Investor Lesson – Avoid Single Fund Dependency
Investors should avoid relying entirely on a single midcap fund. Every investment style goes through cycles of underperformance.
Holding at least two midcap funds with different strategies — one diversified and one high-conviction — can help improve consistency and reduce portfolio risk.
💡 Pro Tip for Investors
Combine different investment styles within midcap allocation instead of betting on one strategy.
Example Combination:
Investment Style Example Approach High Conviction Strategy Motilal Oswal Midcap Fund Diversified Strategy HDFC Mid Cap Fund or Nippon India Growth Mid Cap This balances conviction-driven alpha with diversification stability across market cycles.
Who Should Invest in This Fund?
Suitable for
- Long-term investors (7–10 years)
- Investors comfortable with temporary underperformance
- Investors seeking concentrated high-quality portfolios
Not Suitable for
- Short-term return seekers
- Investors uncomfortable with volatility
Final Verdict
| Factor | Status |
|---|---|
| Strategy broken? | No |
| Cycle mismatch? | Yes |
| Long-term potential intact? | Yes |
| Short-term performance pressure? | High |
Motilal Oswal Midcap Fund is a high-conviction strategy, which means performance may deviate significantly from peers in shorter periods but can reward patient investors over longer horizons.
Investor Takeaway
Instead of reacting to short-term rankings, investors should align investments with fund strategy and time horizon. Combining diversified and conviction-based midcap funds can create a more resilient portfolio capable of navigating different market cycles.
Disclaimer: Mutual fund investments are subject to market risks. Investors should read all scheme-related documents carefully before investing.
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