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Mid-caps Finding Favour

Three mid-cap funds from Kotak, Prudential ICICI and Cholamandalam are lined up at SEBI for approval. Mid-cap funds were the biggest gainers in the last year's rally.

Mid-cap funds seem to be catching the fancy of fund companies. Three new fund houses - Kotak, Prudential ICICI and Cholamandalam are lined up at SEBI for approval. At present, we have five mid-cap funds in India namely: Franklin India Prima, Sundaram Select Midcap, Birla Mid Cap, UTI Master Value and Nifty Junior BeES (an Exchange Traded Fund). Thus, Indian investors will have more options within the mid-cap segment of equity funds.

For fund companies, this completes their offering and provides them a chance to be in the limelight. Mid-cap funds were the biggest gainers in the last year's rally. Among the top three gainers of 2003, two were mid-cap funds - Franklin India Prima and Sundaram Select Midcap. Even in the first five volatile months of 2004, the S&P CNX Mid-cap 200 Index has fallen 16.48 per cent, which is 2 per cent less than the fall of Sensex.

Kotak Midcap Fund will invest 65-95 per cent of its assets in mid-cap stocks and the rest in other than mid-cap stocks. The mid-cap universe would comprise of companies having market capitalisation of over Rs 150 crore and below Rs 1,500 crore. The fund also has the mandate of investing 5-35 per cent in debt and money market instruments.

On the other hand, both Prudential ICICI Mid Cap and Chola Mid-cap funds have the same investment universe. They will invest in those companies that have a market capitalisation between Rs 300 crore and Rs 2,000 crore. In terms of allocation to debt and money market instruments, Prudential ICICI Mid Cap can invest over 5 per cent, while Chola Midcap's exposure is limited to 20 per cent of net assets.

For investors, mid-cap funds do require a higher risk tolerance. Thus, make sure that these funds are not your core investments. Rather, they should be taken in small doses so as to play a role of boundary-hitters in your well-diversified cricket team (portfolio).