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Best mid cap mutual funds to invest in 2020

We are keeping a close watch on HDFC Mid-Cap Opportunities Fund. As per our methodology, the scheme has been in the last quartile for over six months now. We will continue to watch the performance of the scheme and update you on its performance.

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Last Updated: Mar 24, 2020, 02.46 PM IST
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Here is our monthly update on the mid cap mutual fund recommendation list for March. Before proceeding further a word about the current volatility and the sombre mood in prevailing in the market. As you know, Covid-19 and oil price fall have created an unique situation in the market. Since nobody is sure how the situation is going to unravel, you should be extremely cautious about your finances and investments.

This doesn't mean that you should abandon your investments. It is imperative to continue with your investments to benefit from the market crash. However, you should reassess your financial situation and take necessary steps to safeguard against a health emergency or job loss.

Coming back to our recommendation list, there are no changes in the list this month. In short, if you have invested in these mid cap schemes, you may continue with your investments in them and make fresh allocations to them.

As said in previous update, we are closely watching the performance of HDFC Mid-Cap Opportunities Fund. As per our methodology, the scheme has been in the last quartile for over six months now. We will continue to watch the performance of the scheme and update you about your plan of action.

If you are new to these recommendations, here are a few things you should understand before considering to invest in mid cap mutual funds to meet your long-term financial goals. Mid cap mutual funds invest mostly in mid cap stocks or stocks of mid-sized companies. These companies could become a successful large company. If that happens, you will make money.

However, many mid-sized companies never fulfill their promise. In fact, many of them get into trouble because of dubious management practices and lack of vision. This is the risk you are taking while investing in mid cap stocks. When the company hits rough patch, the stock tanks and it may take a very long time to bounce back or it may never regain its glory. When a company faces these phases, its stocks may tank heavily.

This is the reason why mid cap stocks are considered extremely risky and volatile. That is the reason why these schemes are recommended only to investor with very large appetite and ability to cope with volatility. Advisors also say investors should invest in mid cap schemes only if they have a very long horizon.

If you are a new mutual fund investor, you should avoid investing in mid cap schemes. Start with relatively safer large cap mutual funds, gain some experience before venturing into the mid cap space. Do it only if you have the necessary risk appetite. Otherwise, sacrifice those extra returns and be happy with moderate returns from relatively less risky equity schemes like large cap mutual funds and multi cap mutual funds.

Best large cap mutual funds to invest in 2020

Best multi cap mutual funds to invest in 2020

Finally, if you have a very high risk appetite and can invest for a long-term horizon of seven to 10 years, you can invest in mid cap mutual fund schemes. We have handpicked five mid cap equity mutual fund schemes that you may consider to invest to achieve your long-term financial goals.

Best mid cap mutual fund schemes to invest in 2020
Here is our methodology:
ETMutualFunds.com has employed the following parameters for shortlisting the equity mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i) When H = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
ii) When H is less than 0.5, the series is said to be mean reverting.
iii) When H is greater than 0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z
4. Outperformance: It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.
Average returns generated by the MF Scheme =
[Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}
5. Asset size: For Equity funds, the threshold asset size is Rs 50 crore

(Disclaimer: past performance is no guarantee for future performance.)


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