As of April 2024, the Motilal Oswal Midcap Fund has gained significant traction, with an impressive AUM growth of over 143% in just a year. This surge reflects strong investor confidence. In fact, had you started a monthly SIP of ₹10,000 ten years ago, your investment would now exceed ₹40 lakh, a testimony to its potential. But before rushing to invest, it's essential to weigh the risks and rewards.

Investment Objective:

The investment objective of the Scheme is to achieve long term capital appreciation by investing in quality mid-cap companies having long-term competitive advantages and potential for growth. However, there can be no assurance or guarantee that the investment objective of the Scheme would be achieved.

KEY FEATURES & PORTFOLIO ATTRIBUTES

Focused portfolio of around 28 companies

9+ year performance track record of 24.7 % CAGR since inception as of 31st July, 2024. Portfolio is actively realigned in last few months to changing business environments

In this post, we’ll break down the fund's performance, delve into its investment strategy, and see if it aligns with your financial goals.

Performance Overview: Does It Deliver?

1. Trailing Returns

The Motilal Oswal Midcap Fund consistently outperforms both its benchmark and the average mid-cap fund. Over the last 10 years, it has clocked a remarkable CAGR of 23.35%, compared to 21.45% from the Nifty Midcap 150 index. Here’s a snapshot of its trailing returns:

2. SIP Returns

A SIP in this fund has performed exceptionally well. A ₹10,000 SIP started in May 2014 would have grown to over ₹40 lakh, delivering an XIRR of 23.12%, surpassing the Nifty Midcap 150’s 21.61%.

3. Volatility and Downside Protection

While its returns are impressive, the fund’s volatility is something to watch. With a standard deviation higher than both the benchmark and category average, this fund is riskier, and its downside protection—though decent—is slightly weaker than other funds in its category.

In 9 out of 12 quarters with negative market returns, the fund managed to minimize losses better than the benchmark but lagged behind some of its peers.

What’s Unique About the Fund?

1. Concentrated Portfolio

With only 22 stocks in the portfolio, the Motilal Oswal Midcap Fund follows a highly concentrated investment strategy. This approach offers high rewards but comes with elevated risks. A few key bets can significantly impact overall performance.

2. High Portfolio Turnover

Interestingly, despite its concentrated portfolio, the fund has a high turnover ratio of 131%, indicating that the fund manager frequently buys and sells stocks. This strategy could reflect an attempt to take advantage of short-term opportunities, but it raises concerns about the fund’s long-term consistency.

3. Contrarian Sector Calls

The fund manager often makes contrarian calls, investing heavily in sectors like IT and Telecom, which are underrepresented in the mid-cap space. This unique approach could be a game-changer or a risk, depending on market conditions.

SWOT Analysis

Strengths

1. Strong Long-Term Returns: The fund has consistently outperformed its benchmark and peers over multiple timeframes.
2. High Conviction Strategy: With a concentrated portfolio, the fund manager shows confidence in specific stocks and sectors.
3. SIP Performance: Exceptional SIP returns make this fund attractive for disciplined, long-term investors.

Weaknesses

1. High Volatility: The fund has higher volatility than its benchmark, making it riskier for conservative investors.
2. Downside Protection: While it performs well in uptrending markets, its downside protection is not as robust as some peers.
3. High Turnover: The fund's high portfolio turnover ratio may raise concerns about transaction costs and potential tax implications.

Opportunities

1. Sectoral Bets: The fund manager's contrarian bets, especially in IT and Telecom, could yield high rewards if these sectors outperform.
2. IPO Participation: The fund’s active participation in IPOs offers exposure to emerging companies with growth potential.

Threats

1. Concentrated Portfolio Risk: A few wrong picks in the fund’s small basket of stocks could severely impact returns.
2. Market Volatility: Given the fund's higher standard deviation, it might not fare well during prolonged market corrections.

Conclusion: Should You Invest?

Motilal Oswal Midcap Fund is a high-risk, high-reward option, best suited for aggressive investors with a long-term horizon. If you’re comfortable with its volatility and the fund manager's bold, concentrated approach, it could be a great addition to your portfolio. However, for those looking for steady returns with lower risk, a more diversified mid-cap fund might be a better fit.

Always consult your financial advisor before making investment decisions to ensure they align with your goals and risk tolerance.