Everyone is risk-averse these days. Even daredevils who have been investing only in mid cap schemes for a very long term are confessing to their advisors that they don’t feel comfortable taking risks anymore. They also add that the new-found risk aversion has got nothing to with their financial position. They are doing very well in their career and foresee no threat at all. It is just that they are having second thoughts about taking risk because they think it is futile.
Data from AMFI shows that many investors are giving up on mid caps funds. The inflows in the mid cap schemes stood at Rs 497.16 crore, compared to Rs 1,233.17 crore in the month of March. However, fund managers ask investors to look at the long term returns posed by the mid cap schemes before deserting them. The mid cap category is among the top 5 on the 10-year return chart, despite the long correction in the segment.
“Mid cap is a wide segment and well, better than the small caps in terms of governance and quality. It is not a small segment like the large caps. Large caps haven’t done well in 2015-2018 time period. And this gave mid caps more visibility. Despite the correction, midcap valuations are fairly well placed and it has some really upcoming sectors like insurance, digital businesses, chemical, pharma etc. Most of these segments have many good mid cap companies. I think the long-term returns are because of some of these companies,” says a fund manager, with a big fund house, who wants to stay anonymous.
Seven mid cap schemes offered more than 12% returns over 15 years. Five of them offered over 12% returns in the last 10 years. More than 12% is relevant only because we normally assume 12% returns while calculating our long-term financial goals. Fund managers believe that the expectations of the midcaps bouncing back are really high.
“We won’t say that midcaps might bounce back before largecaps, but the chances of them doing well as soon as the COVID19 risks are over are good. They have good valuations, some mid caps companies are handling this situation very well and there is a huge ground for stock picking in the segment. Our outlook for the mid cap segment is positive and I believe that investors should not shun their mid cap schemes at the moment,” says Mayur Patel, fund manager, IIFL Mutual Fund.
However, this is not to say that retail investors should start hoarding midcaps. Fund managers say that investors who are already invested in midcap schemes should not sell their investments and if investors have the risk appetite, they can buy new schemes too. “Investors who take risk and have a long investment horizon can buy a mid cap scheme if their asset allocation allows them. Don’t go overboard. However, be patient with your investments. Look at your long term returns and don’t book losses in your schemes,” says Mayur Patel.
Finally, do not overlook your current situation and risk appetite. If you cannot afford to take the extra risk associated with the these schemes, you should stay away from them.