Upside/downside capture ratios show whether a given mutual fund has gained more/lost less than benchmark, category average
Investors are veering towards midcap funds. January 2020 saw net inflows worth nearly Rs 1,800 crore in midcap funds, more than the Rs 796 crore that went in December 2019. While midcap stock valuations have been inexpensive for a while, investors have been recently enthused by the last 6-month return clocked in midcap funds.
Sample this: the worst midcap fund has delivered over 10% in last six-month period. During such times, there is a mad rush for selecting best midcap funds or top midcap funds. Instead of looking solely at past returns, smart DIY (do it yourself) investors should consider risk stats in their selection process. One of the interesting risk stats is the upside capture/downside capture ratio. RupeeIQ takes a detailed look on how funds stack up based on these ratios and also tells you the five midcap funds with better than category average metrics.
A midcap fund predominantly focusses on midcap stocks, which are shares of companies ranked 101st to 250th in the market capitalisation list. Equity funds do not give straightline returns. Equity funds go up or down as per the portfolio stocks movement. In general, an actively managed fund (a fund where portfolio calls are taken by a fund manager) is supposed to beat benchmark/index. When there is upside in markets, a good fund is expected to capture that upside. On the other hand, when there is downside, a good fund is expected to shield against that drawdown.
Upside/downside capture ratio tells you how good your fund has done vis a vis the benchmark. Simply put, the ratios show you whether a given fund has gained more or lost less than a broad market benchmark. Individual fund numbers are used to make category upside/downside capture average.
In this study, RupeeIQ is trying to look at how midcap funds (which have at least Rs 50 crore AUM & 1 year history) have done against their category average. An upside capture ratio better than category average indicates a midcap fund has generally outperformed category in periods of positive returns. In the same vein, a downside capture ratio less category indicates that a midcap fund has outperformed category in periods of negative returns.
The upside capture ratio for midcap fund category is 88. So, midcap funds with higher than category average are great at capturing upside.
We found that Tata Mid Cap Growth Fund, managed by Rupesh Patel, has the highest upside capture ratio of 105.
The next fund with more than category average upside capture ratio is BNP Paribas Midcap Fund with 99. The scheme is managed by Karthikraj Lakshmanan and Abhijeet Dey.
Edelweiss Mid Cap Fund, managed by Harshad Patwardhan, has the 3rd best upside capture ratio of 98.
The 4th on this list is Invesco India Midcap Fund, managed by Pranav Gokhale and Neelesh Dhamnaskar, with an upside capture ratio of 96. Axis Mid Cap Fund, managed by Shreyash Devalkar, also an upside capture ratio of 96.
The 5th spot is shared by Nippon India Growth Fund (94), Kotak Emerging Equity Fund (94) and L&T Midcap Fund (94).
Unfortunately, there are some midcap funds that are poor when compared to category average. This list includes IDBI Midcap Fund (70), Franklin India Prima Fund (80), SBI Magnum Midcap Fund (83), Motilal Oswal Midcap 30 Fund (84), DSP Midcap Fund (86) and PGIM India Midcap Opportunities Fund (86).
The downside capture ratio for midcap fund category is 80. So, midcap funds with lower than category average are great at protecting downside.
We found that Axis Midcap Fund has the lowest downside capture ratio of 49. There is no fund with such a low capture ratio in the 20 funds that we studied.
Prominent downside protectors are Franklin India Prima Fund (67), DSP Midcap Fund (70), Taurus Discovery (Midcap) Fund (74), Invesco India Midcap Fund (75), Kotak Emerging Equity Fund (76), Nippon India Growth Fund (77), Motilal Oswal Midcap 30 (77) and IDBI Midcap Fund (79).
Unfortunately, there are some midcap funds that are poor when compared to category average in downside capture ratio. This list includes Aditya Birla Sun Life Midcap Fund (97), SBI Magnum Midcap Fund (95), BNP Paribas Midcap Fund (93), Sundaram Midcap Fund (92) etc.
We looked at midcap funds that have better than category average upside capture as well as downside capture ratios.
Such midcap funds have gained more and also lost less than peers (category average). These funds are all-rounders that have managed to build portfolios that have better upside capability and also better downside protection ability. These 5 stars are Nippon India Growth Fund, Kotak Emerging Equity Fund, Axis Mid Cap Fund, Invesco India Midcap Fund and Taurus Discovery (Midcap) Fund. Take a look at their stats below.
All-rounder midcap funds
|Scheme Name (growth option)||Upside capture ratio||Downside capture ratio|
|Nippon India Growth||94||88||77||80|
|Kotak Emerging Equity||94||88||76||80|
|Axis Mid Cap||96||88||49||80|
|Invesco India Midcap||96||88||75||80|
|Taurus Discovery (Midcap)||92||88||74||80|
* Considered funds with atleast Rs 50 cr AUM & with atleast 1 yr history As of Jan 31, 2020 Source: Morningstar
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