NFO review: HSBC Mid Cap Fund opens for subscription

Staff Writer   /   September 6, 2021

HSBC Asset Management (India) Private Limited has announced the launch of HSBC Mid Cap Fund, an open-ended equity scheme predominantly investing in mid-cap stocks. The NFO period is from September 6 to 20, 2021 and in this time investors can get per unit at Rs 10. After the NFO period, the midcap fund will be available for ongoing subscription at prevalent NAV. Read on to know more.

Fund objective

HSBC Mid Cap Fund aims to seek long-term capital growth from an actively managed portfolio of equity and equity-related securities of predominantly mid-cap companies. HSBC Mid Cap Fund will follow Nifty Mid Cap 150 Index TRI Benchmark and will be managed by Ankur Arora, SVP and Fund Manager, HSBC AMC.

Key features

The important features of HSBC Mid Cap Fund include

* Exploring opportunities in the expansionary theme that support Mid and Small cap companies to generate alpha

* Investing in innovative and new-age companies with disruptive product and service ideas to grow faster

* Investing minimum 65% of AUM in mid-cap stocks

Following the ‘4Q’ investment approach while identifying investment opportunities, HSBC Mid Cap Fund will focus on

o   Quality of Business: Scalability of business, Competitive Advantage, Market Share, Longevity, Pricing power, Brand strength

o   Quality of Management: Track record, Corporate governance, Promoter background, Capital allocation

o   Quality of Earnings: Consistency in earnings, Capital intensity, Cash flows

o Quantum of Earning: Strong growth in earnings

Fund-house speak

Commenting on the launch of the fund, Ravi Menon, CEO, HSBC AMC said, “We do believe that midcaps offer a more diversified universe for investment and with the current emerging themes it also offers quality investment opportunities. With a quality portfolio, we are confident that HSBC Mid-Cap Fund will be a healthy addition to the customer’s portfolio for long term compounding.”

Talking about the fund’s investment strategy Ankur Arora, Senior Vice President & Fund Manager, HSBC AMC said, “HSBC Mid Cap Fund aims to build a concentrated portfolio through the bottom-up implementation of stock ideas and top-down approach for prudent risk control. The fund will explore opportunities in the innovative disruptive theme and is expected to benefit from the construction of a fresh portfolio which is at the beginning of the expansion cycle.”

Midcap fund category scan

There are 27 midcap equity funds in the MF industry. Midcaps funds in total have Rs 1.42 lakh crore assets under management. This is a popular fund segment in the market.

The most popular midcap funds are HDFC Mid-Cap Opportunities, Kotak Emerging Equity, Axis Midcap, DSP Midcap, Nippon India Growth, Franklin Prima, L&T Midcap, Sundaram Midcap, UTI Midcap and SBI Magnum Midcap. These are all actively managed funds.

There are a few passively managed funds as well in this space such as ABSL Nifty Midcap 150 Index Fund, Nippon India Nifty Midcap 150 Index Fund, ICICI Pru Midcap 150 ETF, Motilal Oswal Nifty Midcap 150, Nippon India ETF Nifty Midcap 150 and Motilal Oswal Midcap 100 ETF. These options have lower expense ratios (15 bps to 100 bps).

In the the past 1 year period (trailing basis), midcap funds on an average have gained 66%. In the 3 year period, the midcap fund category has clocked 17.2 per cent CAGR while in the 5 year period they have given 15.44 per cent CAGR.

In terms of rolling return basis, midcap funds as a category over 3 year period have generated 8.1 per cent returns and over 5 year period have reported 15.2 per cent returns.

Why midcap

Midcap funds present an opportunity to invest in a portfolio of predominantly mid-sized companies with faster growth potential. This provides diversification to an investor’s overall equity mutual fund portfolio.

As per mandate, midcap funds invest predominantly in mid-cap stocks (65-100%), and the balance in small-cap stocks, large-cap stocks, and debt instruments (0-35%).

Do note that the volatility of a portfolio dominated by mid-cap stocks will be higher than largecap stocks.
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