JM Financial Mutual Fund launched the JM Midcap Fund, which would predominantly invest in midcap stocks. Interested investors can park their money in this open-ended equity scheme to put their money in the stocks of midcap companies.
The scheme opened on October 31, 2022 and will continue to remain on offer till November 14, 2022 for those looking to earn money from the highs and lows of midcap stocks without going through the hassle of researching details of stocks and shares.
Slated to be run by Satish Ramanathan and Chaitanya Choksi, this fund aims to create long-term wealth like other fund houses selling midcap funds in the country. The level of risk is too high, so investors must seek the opinion of their financial advisors before putting in their money. The minimum investment amount is ₹5000 though one may invest in multiples of any amount, thereafter. Post the fund launch, investors can make a minimum additional investment of ₹1000 every time they want to invest. There is no entry load though they have to pay an exit load of one per cent if the fund units are redeemed/switched out within 180 days from the date of allotment.
There are multiple plans or investment options available, viz., the “Regular” and “Direct” plans having both “Growth Option” and “Income Distribution cum Capital Withdrawal (IDCW) Option”. The benchmark for this fund is the NIFTY MIDCAP 150 (Total Return Index).
To invest or to not invest
Regarding this new fund offer (NFO), Rajani Tandale, Product Head – Mutual Fund, 1finance.co.in said, “New fund offers are preferable if they come with a new theme or a new strategy to invest, not explored by existing funds. Otherwise, existing funds have the upper hand regarding the availability of information regarding portfolios and returns.”
This fund is new on the block, so there is no way that one can assess its potential. This explains why investors must scan through existing or similar funds instead of putting their money in a fund that is yet to take off.
New investors can look at the fundamentals and technical details of similar funds on the block. The stronger the fundamental ratios better the fund is. The Sharpe ratio, Sortino ratio, Jensen Alpha ratio and Treynor ratio represent risk-adjusted returns, downside risk, etc. are essential factors that can be used to evaluate a fund’s quality.
Skewness and kurtosis are the technical tools to measure the risk inherent in any fund. This represents whether the scheme generates frequent small losses/profits or few extreme losses/gains. Through this analysis, we derive whether the fund falls in the high-risk and high-return category or low-risk low volatility.
Assessing fund manager’s performance
Checking the performance of a fund’s fund managers is a common way to predict its performance. One way is to check the performance of funds managed by them in the past. One must check for at least five to 10 years of experience and performance over time to verify their effectiveness in the long run.
Regarding the fund manager’s performance, Tandale shared, “The fund manager Satish Ramanathan’s ‘strike rate’ which is calculated based on the alpha generation concerning historically managed funds is good, as per 1 Finance Research. As per the SEBI classification of mutual fund schemes, midcap stocks are from 101 to 250 ranked as per market capitalization as the benchmark. This means the fund managers have to create their portfolios only from this universe.”
Currently, 28 active open-ended midcap funds are available in the stock market from various asset management companies. The majority of existing schemes are struggling to beat the benchmark. Suddenly jumping into a new midcap fund while misconstruing it as a cheap investment may not go down well in the long run.
|Number of midcap fund schemes outperformed benchmark (Nifty Midcap 150 - TRI)|
|One Year||Two Years||Three Years||Five Years||Ten Years|
|Number of active midcap funds outperformed benchmark||7||6||5||8||6|
|Outperformance in percentage||27%||25%||22%||38%||33%|
|Outperformance is based on CAGR returns. The data is as on October 30, 2022|