What is a large & mid-cap mutual fund:
Large and mid-cap equity mutual funds invest money in the equity of large and mid-cap companies. As per mutual funds classification of Securities and Exchange Board of India (SEBI), a large and mid-cap fund has to invest a minimum 35% of its total assets to large-cap companies and minimum 35% of total assets to mid-cap companies.
- Large Cap Companies: 1st -100th company in terms of full market capitalization
- Mid Cap Companies: 101st -250th company in terms of full market capitalization
Key features in large & mid-cap funds:
Large & mid-cap funds invest money in two categories of companies hence they will exhibit the advantage and disadvantage of both category of funds. And because of this mixed investment, they remove some of the disadvantages of single category funds. The mixed investment will create some theoretically unique features:
- High return compared to a pure large-cap fund
- Low risk compared to a pure mid-cap fund
- Better liquidity compared to a mid-cap fund
- Opportunity to participate in the growth of mid-cap companies with the stability of large-cap companies.
Answer to the question: do large & mid-cap funds generate more retired than large-cap funds?
There are many ways to answer this question, here we have to consider returns, risk and risk-adjusted ratios of large & mid-cap funds, pure large-cap funds and pure mid-cap funds. We have used median values od following parameter of each category for our analysis:
- One year rolling return category median
- Three-year rolling return category median
- The weighted average of one and three rolling return category median
- Maximum drawdown category median
- EvaR category median
- Sharpe ratio category median
Large & mid-cap fund is expected to have higher one, three and weighted average rolling return than pure large-cap funds. The data is presented in table 1 below:
Analysis Date: 31/October/2020
| Median | Large Cap Funds | Large & Mid-Cap Funds | Mid-Cap Funds |
|---|---|---|---|
| Weighted Average Return (1Y Return:50%, 3Y Return 50%) | 5.435% | 3.14% | 0.99% |
| 1 Year Rolling Return | 1.735% | -1.045% | -3.98% |
| 3 Year Rolling Return Annualised | 8.775% | 8.365% | 6.25% |
| Drawdown | -27% | -30.465% | -32% |
| EVaR 1 Year | -25.5% | -28.05% | -35% |
| Sharpe Ratio | -0.03 | 0.0177 | 0.0173 |
It is expected that large & mid-cap funds will give more return compared to pure large-cap funds. Based on the data presented in table 1 the median return of large & midcap funds is lower compared to the median return of large-cap funds. The risk is higher compared to the large-cap funds and returns are lower compared to large-cap funds. The risk-reward proportion is not in favour of large & mid-cap fund. The mid-cap funds have the lowest return and highest risk in the fund categories discussed above.
Top five large & mid-cap funds
Table 2 shows the top five large & mid-cap funds based on rolling returns of one year and three years.
| Fund Name | Weighted Average Return (1Y Return:50%, 3Y Return 50%) | Weighted Average Return Rank | 1 Year Rolling Return | 3 Year Rolling Return Annualised | Drawdown | EVaR 1 Year | Sharpe Ratio |
|---|---|---|---|---|---|---|---|
| Mirae Asset Emerging Bluechip Fund | 10.18% | 1 | 6.61% | 13.76% | -27.42% | -28.86% |
0.3182 |
| Sundaram Large and Midcap Fund | 7.09% | 2 | 1.72% | 12.45% | -31.37% | -25.37% | 0.055 |
| Kotak Equity Opportunities Fund | 6.96% | 3 | 3.65% | 10.27% | -28.32% | -26.46% | 0.112 |
| Invesco India Growth Opportunities Fund | 6.94% | 4 | 1.66% | 12.22% | -26.56% | -32.63% | 0.0861 |
| Canara Robeco Emerging Equities | 5.65% | 5 | -0.39% | 11.68% | -25.8% | -39.53% | 0.1514 |
Analysis Date: 31/October/2020
If we look at the best performing and second-best performing fund the difference in return is very high around 3%. Mirae Asset Emerging Bluechip Fund has given good returns its three years rolling return (annualised) is 13.76% whereas Sundaram Large and Midcap Fund has given the return of 12.45%.
One year maximum possible loss (EVaR 1 Year) for Mirae Asset Emerging Bluechip is 28.86%, which slightly above the category median EVaR 1 Year. Category median return is 3.14% (Weighted Average Return) whereas Mirae Asset Emerging Bluechip return is 10.18%. The return is more than 3 times the category median return.