Ask Morningstar: Whether or not to exit this mid-cap fund

By Himanshu Srivastava |  06-09-22 | 

What is your take on HDFC Mid-cap Opportunity?

The fund is not doing great as compared to its peers. I have been investing in it over the past 10 years so overall return are above 12%.

Should I continue with my SIPs? Should I stop my SIPs? Should I leave the existing investment in the fund as it is?

I shall answer your query in three parts.

  • Let's understanding the fund.

HDFC Midcap Opportunities fund is one of the most prominent funds from the mid-cap category. It is the largest mid-cap fund in the industry and is managed by one of the most seasoned managers in the mid-cap space, Chirag Setalvad. He has managed this fund since June 2007, therefore his stability at the helm has ensured the continuity of the thought process and investment style.

Besides, there are other factors as well which makes this fund a good investment option for investors. Detailed and exhaustive research is central to the manager's investment approach. Setalvad emphasizes on gaining an in-depth understanding of a business before investing. He seeks companies with proven track records, so he can gauge how they have held up during testing times. Such a research-intensive investment approach is crucial while managing mid cap strategies as the segment is relatively risky. Also, the manager prefers investing in quality companies with strong management teams and robust business models. This aspect reduces the chances of manager going wrong on his investments.

Check out the analyst report on HDFC Mid-Cap Opportunities.

  • Let's look at performance.

Given the bias for quality stocks, the fund can be expected to underperform the competition in market phases when speculative fare is in favour. Additionally, since it is the largest fund in the category, it adds significant liquidity risks in the portfolio, which may limit the fund’s agility compared to smaller sized peers.

The fund has had some tough times in the past, which could also be attributed to manager’s investment style being out of favour. However, the fund’s performance now seems to be catching up. While over 3 and 5 year periods, it is still underperforming the category peers, the underperformance is not significant. However, it is a top quartile performer over a one-year period which highlights that the fund’s performance is on a path of improvement and this will help in improving its long-term performance too going ahead. The fund continues to deliver robust performance over a 10 year period, which is in line with your investment tenure in this fund.

  • What should you do?

There is no need to redeem your investment from this fund if you don’t have any immediate requirement of money. However, given some of the risks here, particularly the liquidity risks due to the funds large size, you can consider diversifying the midcap portion of your portfolio by adding another mid-cap fund in it (if you have so far not invested in any other mid-cap fund). This will not only diversify the risk but also expose you to a different manager and investment style.

You can also employ the help of a financial planner who can review your portfolio and recommend appropriate changes in line with your investment objective and risk appetite.

Related Reading

Choosing from 5 mid-cap funds

Don't be hasty to exit because of underperformance

Articles authored by Himanshu Srivastava

Fund research reports


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Ram Patil
Sep 11 2022 04:31 PM
 Can you explain, how there is liquidity risk if AUM is higher for this fund?

"Additionally, since it is the largest fund in the category, it adds significant liquidity risks in the portfolio, which may limit the fund’s agility compared to smaller sized peers."
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