Fund houses launch mid-, small-cap NFOs as valuations turns attractive

Fund houses have lined up mid- and small-cap new fund offerings (NFOs) as valuations have turned attractive following a correction from this year's highs. 

Axis MF, Navi MF and Mirae Asset MF are among fund houses to roll out passive funds focused on mid- and small-cap themes.

Axis MF recently launched Axis Nifty Midcap 50 Index Fund and Axis Nifty Smallcap 50 Index Fund. While Navi MF came out with Navi Nifty Midcap 150 Index Fund and Mirae Asset opened Mirae Asset Nifty Midcap 150 exchange traded fund (ETF).

Market participants say that focus on passive is because they offer market-linked returns and there is low churning in the portfolio. Typically, smallcap funds are considered volatile as fund managers sometimes take increased risk to enhance the returns. But in passive funds, there is no active value addition from the fund managers.  

Chandresh Nigam, MD & CEO, Axis MF said: “In the broader market, midcaps have consistently outperformed making them ideal for long term wealth creation. Along with an attractive entry point for long term investors, they also offer a favourable risk-reward quotient. The introduction of the Axis NIFTY Midcap 50 Index Fund aligns with our belief of offering quality products to investors that suits their risk appetite. We believe it will be a notable addition to our portfolio of passive offerings.”

The Axis NIFTY Midcap 50 Index Fund invests in 50 most liquid midcap stocks, giving preference for stocks where F&O contracts are traded on NSE. It presents a diversified portfolio for investors that focuses on sustainability for picking stocks.

Market participants say that this is the right time for the investors to start investing in mid- and small-cap funds as they have seen sharp correction in the last few months. In the last three months, on average midcap and smallcap funds are down by 2.99 per cent and 2.68 per cent respectively, while largecap funds have given returns of -0.31 per cent.

In the last few years, investors have been attracted towards passive equity schemes as they offer returns in line with markets and are easy to understand for the first-time investors.

ICICI Direct Research in its note has said passive funds in the form of ETFs and index funds have continued to gain traction. Assets under management (AUM) of index funds, which is largely dominated by retail investors is now at Rs 55,000 crore. ETF AUM (Rs 3.91 trillion) while still dominated by institutional investors, is gaining popularity among retail investors as well.

“As markets saw some recovery from the lows in the first week of March 2022, midcap and small cap funds have outperformed. Investors should be extremely careful while investing in sectors funds. While remaining constructive on midcap and small cap funds, investors need to be cautious on these funds as volatility is likely to be higher in this segment," said the ICICI Direct Research report.