Seven mid- and small-cap funds you can consider adding to your portfolio

Here is the list of the seven mid- and small-cap funds selected by our analysts. Axis Midcap Fund Fund philosophy The fund prefers quality growth-oriented stocks. Performance The last three years have hit this fund's performance like a thunderbolt, with 2023 being the worst. While it beat an average peer and benchmark in the first half of the year, the fund underperformed significantly in the second half. Reasons Much of the fund's underperformance can be attributed to its growth style of investing. However, its tendency to be heavily invested in large caps also contributed to the relative underperformance since large caps didn't fly as much as the other segments in the 2023 rally. Its investment in consumption-themed stocks also pulled down performance. Further, its minimal exposure to stocks that thrived in 2023 also contributed to the underperformance. Our take With a continued focus on quality, Axis Midcap Fund made some amends, such as reducing exposure to consumer discretionary stocks and adding new stocks. Its slight tilt towards large caps may be advantageous in 2024. While assured of the quality orientation, we'd like to see how the changes manifest. DSP Small Cap Fund Fund philosophy The fund's relatively low portfolio market capitalisation signifies its adherence to its label, with a 'buy-and-hold' strategy. Performance After an average 2022, the fund saw an impressive turnaround in the first half of 2023. The sectors that helped the fund top the charts in the first half of 2023 contributed to its poor show in the latter half. Notably, this fund had a relatively good 2023 among our recommended small-cap funds. Reasons Materials, chemicals and automobile sectors were the worst performers during the second half of 2023. Yet, the former two sectors remain in the top three by allocation. The AMC believes that patience is a virtue and long holding periods are often required to nurture mid- and small-cap businesses. Our take With Vinit Sambre at the helm, DSP Small Cap Fund boasts a strong fund manager pedigree. Further, a 'true-to-label' approach and value tilt keep us hooked to this fund. Though it previously also had lean phases amid market rallies, we are hopeful that once the market stabilises, the fund should recover. Edelweiss Midcap Fund Fund philosophy A new entrant in our recommendation list, this fund has seen enough market cycles in its lifetime. It follows a GARP approach. Performance This fund delivered neck-to-neck performance with an average peer in 2023. It has consistently held a four-star rating since July 2021. R