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Evolving Mid-Cap Pie

With the launch of the Axis Midcap fund, investors have more choices in the mid-cap category…

With the launch of the Axis Midcap Fund, the mid-cap category is evolving with fund houses offering finer nuances and more choice to the investor

Another mid-cap offering hits the market, this time from Axis Mutual Fund. What makes it special? The fact that it is so focussed on larger mid caps. The fund will primarily invest in mid-sized companies, but within that space, will show a preference for the larger ones that carry relatively lower risk than the smaller mid-cap options.

While stocks are broadly categorised as large caps, mid caps and small caps, the definition of each will differ depending on who is doing the classification. But largely, mid caps are seen as a compromise between the two. They do offer some amount of stability that a large cap promises combined with the growth rate that a smaller company can offer. Mid caps are not as volatile as small caps and offer better growth prospects than large caps.

This new offering has limited its investment universe to the mid-cap space and within that is more focussed on the larger players in this market cap category. The fund house has a defined universe of large mid-cap stocks and small mid-cap stocks from the BSE Midcap index constituents. The large mid-cap stocks are those with market cap greater than or equal to the median stock of the BSE Midcap. Federal Bank, Tata Chemicals, Glaxo Smithkline Consumer and Bajaj Holdings are some of the stocks that fall within this universe.

The fund proposes to tilt its investments towards larger mid-cap companies that combine the flexible, innovative, high-growth features of smaller companies with the proven management and liquidity of larger companies. The premise: larger mid-cap companies are usually more flexible and have the ability to respond swiftly to opportunities in the market leading to higher growth as compared to large caps.

At Value Research, all funds with exposure to such stocks fall into the Equity: Mid & Small Cap category. This includes DSP BlackRock Micro Cap, which invests in companies outside the top 300 by way of market capitalisation, (currently less than Rs2,808 crore). With the emergence of more character in the mid-cap space, it may not be long before the trend for better defining the category takes over among fund houses and the category gets refined, necessitating the creation of a separate mid-cap and a small-cap category.