Best mid cap mutual funds to invest in 2019

Mid cap mutual fund schemes are back in action after being hit badly in the market correction last year. These mutual fund schemes have got out of the negative returns zone and are offering ‘decent’ returns in the short term. Mid cap mutual fund scheme category has offered 7.46 per cent returns in the last three months. However, mutual fund advisors still believe that the mid cap mutual funds have the potential to make investors rich over a long period. They are asking investors to not exclude mid cap mutual fund schemes from their portfolio.

However, advisors do not recommend mid cap mutual fund schemes to new investors and to those investors who do not have the risk appetite. Mid cap mutual fund category can be very volatile at times and this might spook the new investors, advisors say. They believe that this category is for investors who can stomach a lot of risk and volatility. This is the reason why we ask investors to choose mid cap schemes only if they have a very high risk tolerance level and an investment horizon of seven to 10 years.

As the name suggests, mid cap mutual fund schemes invest in mid-sized companies that have the potential to become large companies. If they become large companies, investors are in for a treat, but if they fail, investors may have to stomach losses. Simply put, mid cap schemes are risky and can be extremely volatile. But they also have the potential to offer extra returns to compensate you for the higher risk you are taking. However, if you do not have the stomach for higher risk and a long investment horizon, you should stick to relatively less risky options like a large cap scheme or a multi cap scheme. Here are the
Best large cap schemes to invest in 2019
and the Best multi cap schemes to invest in 2019

So, if you have a high risk appetite and can invest for a long-term horizon of seven to ten years, you can invest in midcap mutual fund schemes. We have handpicked four midcap 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 2019

L&T Midcap Fund
HDFC Midcap Opportunities Fund
DSP Midcap Fund
Invesco India Midcap Fund

Here is our methodology: Mutual Funds has employed the following parameters for shortlisting the equity mutual fund schemes.

Mean rolling returns: Rolled daily for the last three years.

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

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

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}

Asset size: For Equity funds, the threshold asset size is Rs 50 crore

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