NFO Analysis: Mirae Asset Midcap Fund

Mirae Asset Mutual Fund's midcap fund was the flagship product for the fund house, viz. Mirae Asset Emerging Bluechip Fund. However, post Securities and Exchange Board of India’s re-categorisation, due to its majority holdings in mid-cap and large-cap stocks, the fund had to re-categorise itself as large and mid-cap fund. Due to this, the fund house was missing its pure mid-cap fund. Recently, the house launched a New Fund Offer (NFO) Mirae Asset Midcap Fund. This new open-ended equity scheme is open for subscription from July 8, 2019 and closes on July 22, 2019 which again reopens on July 30, 2019. Here the fund will predominantly invest in mid-cap stocks to build its portfolio by investing in a minimum 65 per cent of the total assets in mid-cap stocks.

Objective:
The investment objective of the scheme is to provide long-term capital appreciation from a portfolio by investing predominantly in Indian equity and equity-related securities specifically of mid-cap companies. From time to time, the fund manager may also participate in other Indian equities and equity-related securities to form an optimal portfolio.

Asset Allocation:
Under normal circumstances, the scheme’s asset allocation (percentage of net assets) will be 65 per cent to 100 per cent in equity and equity-related instruments of mid-cap companies and 0 per cent to 35 per cent in equity and equity-related instruments of other than mid companies and/or 0 per cent to 35 per cent in money market instruments, debt securities, instruments and/or units of debt/liquid schemes of domestic mutual funds.

Benchmark:
The performance of the scheme will be benchmarked against Nifty Midcap 100 TRI. This the same benchmark index against which more than half of its peers are benchmarked.

Investment Strategy:
As per stated investment objective, the scheme will follow a strategy of predominantly investing in mid-cap companies. To construct an optimum portfolio, the scheme may also seek to invest in other equity and equity-related securities.

The selection process that the fund manager will follow is a bottom-up, on a stock-by-stock basis. Here the focus is to build a strong portfolio of growth companies. The stocks universe will majorly comprise of companies that have robust business models, which enjoy sustainable competitive advantages as compared to their peers and have high return ratios.

At all times, the effort of the fund manager would be to build a portfolio in such a way that may avoid concentration and liquidity risk. To avoid liquidity risk, the fund manager will monitor the trading volumes in a particular stock before investment.

Fund Manager:
The scheme will be managed by Ankit Jain who also manages Mirae's flagship product Mirae Asset Emerging Bluechip Fund jointly along with Neelesh Surana and he also manages Mirae Asset Great Consumer Fund. Mirae Asset Emerging Bluechip fund has AUM of Rs. 7,751 crore at the end of June 2019 and has given a return of 9.13 per cent in the last one year compared to its benchmark that generated 5.01 per cent in the same period. Another fund viz. Mirae Asset Great Consumer Fund which is solely managed by Ankit Jain has AUM of Rs. 802 crore at the end of June 2019 and in the last one year it generated 0.58 per cent returns.

Our Recommendation:
Mirae Asset is one of the emerging fund houses and its funds have been performing in line or even better than the old fund houses like HDFC and ICICI. The investment philosophy adopted by them has been really working in favour of them as far as Mirae Asset Emerging Bluechip Fund is concerned.

The peers of this scheme on an average hold more than 50 companies in its portfolio with an average turnover ratio being 90 per cent. As we have seen from the investment strategy of the fund, they want to avoid concentration risk which means that there is a possibility that this scheme would also hold more than 50 companies in the portfolio. One interesting thing with regards to its investment strategy is that they would avoid liquidity risk by investing in companies with a good amount of trading volumes. This will not just help the scheme to avoid liquidity risk but also help them to exit stocks easily if they no longer fit into their investment strategy.

Although, we believe that before investing in any fund you should check if it suits you in terms of your risk and returns. For someone who believes that he needs a mid-cap fund for achieving long term financial goals which is 8 to 10 years further from today, then there are other funds with longer history to analyse and choose from.