While buying mutual funds, the aim of investors is to see their wealth grow with time. Although mutual fund returns differ based on the category of funds they choose, one of the fair parameters to judge a fund’s performance is to compare its returns against the benchmark index.
If the fund consistently beats the benchmark, it is seen as a good performer. On the other hand, if it fails to do so – it is seen to be lagging.
We evaluate here the performance of mid cap equity mutual funds against their corresponding benchmarks.
Let us first understand what exactly are mid cap mutual funds:
Mid cap mutual funds
Mutual funds that focus on equities and invest in mid-market capitalization firms are known as "mid cap funds." Given favourable market circumstances, these funds have the potential to produce high returns over the long term. The goal of midcap mutual funds is to balance risk and return. These funds are less risky than small size funds while having a better growth potential than large cap funds.
Mid-cap funds offer strong long-term growth potential. There is a good chance that individuals who invest in these mutual funds for a long time horizon would receive significant returns. In turn, this offers the chance to build wealth over the long term. Another important point is that mid-cap funds make investments in a range of mid-cap businesses from various industries. This makes sure that your money is evenly distributed across the nation's diverse industries.
What is a benchmark in mutual funds?
A benchmark is a baseline against which the efficiency of a mutual fund scheme is evaluated. It is a rough estimate of the returns that an investor's investment should have generated.
Benchmark indices are chosen by fund houses based on market capitalization and the sectoral or thematic strategies of the funds. Your mutual fund schemes should aim to outperform the benchmark's return; if they do, their performance will be regarded as successful.
In India, a benchmark index declaration is required for all forms of investment options. Sebi is in charge of enforcing this legislation on the financial market.
Why is benchmark important?
A benchmark index is important because it offers informative and a useful standard for evaluating mutual fund performance. Due to the fact that every fund manager strives to beat the fund's benchmark index over the long term, this enables investors to evaluate a fund manager's investment skills.
It is claimed that a mutual fund scheme has outperformed if it generates returns greater than the benchmark, and vice versa. On the other hand, your fund can still be considered to have beaten the benchmark if the benchmark index declines over a period of time but your fund's NAV declines less (in percentage terms) over the same period.
Here is the list of ten funds that managed to beat their benchmark indices in the past five years:
|Name of schemes||5 Year return (%)||Benchmark|
|Quant Mid Cap Fund||19.39||12.51|
|PGIM India Midcap Opportunities Fund||18.20||12.51|
|Edelweiss Mid Cap Fund||14.84||12.51|
|Invesco India Mid Cap Fund||14.46||12.48|
|Kotak Emerging Equity Fund||14.41||12.51|
|Nippon India Growth Fund||14.01||12.51|
|Tata Midcap Growth Fund||13.26||12.51|
|Motilal Oswal Midcap 30 Fund||13.14||12.51|
|SBI Magnum Midcap Fund||12.67||12.51|
(Source - AMFI data, July 8, 2022)
As we can see in the chart above, Quant Mid Cap Fund was ahead of the benchmark index by over seven percent, PGIM India Midcap Opportunities Fund outpaced its benchmark index by more than six percent.
Other mutual fund schemes which have beaten the benchmark indices are Axis Midcap, Edelweiss Mid Cap Fund, Invesco India Mid Cap Fund, Kotak Emerging Equity Fund, Nippon India Growth Fund, Tata Midcap Growth Fund, Motilal Oswal Midcap 30 Fund and SBI Magnum Midcap Fund.