Mid, small-cap funds ride on Modi wave, post up to 5.4% gains in a week

According to data from Amfi, small- and mid-cap funds posted gains of 5.4 per cent and 4.6 per cent, respectively, over the past week

Mid- and small-cap schemes, which had given tepid returns in recent years, have bounced back sharply in the last week following the euphoria surrounding election results. After the Bharatiya Janata Party’s stunning victory, market players now see scope for a broad-based market rally. Further, they expect quality mid- and small-cap companies to do well.

According to data from the Association of Mutual Funds in India (Amfi), small- and mid-cap funds posted gains of 5.4 per cent and 4.6 per cent, respectively, over the past week. Both categories bettered the gains posted by large-cap funds, which rose 4.2 per cent on an average.

Meanwhile, the benchmark Sensex gained 4 per cent during the same period. On Monday too, the mid-cap and small-cap indices gained over 1 per cent each, even as the Sensex gained just 0.63 per cent.

Experts say the improvement in returns has generated interest in the two categories, but it will take few weeks before investors start deploying fresh money. “While it is too early to judge how the flows in these categories will move, we are seeing a rise in queries to understand whether this is a good opportunity to deploy fresh funds,” said Vinit Sambre, head (equities), DSP Mutual Fund.

For some investors in the mid- and small-cap categories, the rise in returns could bring some relief. In the last three-year period (as of March 31), the return for systematic investment plans (SIPs) in mid-cap schemes has been at 6.4 per cent, shows the data from Value Research. For small-cap schemes, it stands at 4.7 per cent. Retail investors typically make investments using the monthly investment facility in SIPs.

“Some investors have booked profits during this short rally. We need to wait for a few weeks to see the trend,” said Vidya Bala, head (MF research), FundsIndia.

Both advisors and analysts reckon that is a good opportunity to start deploying funds in mid- and small-caps. However, they add, the caveat is to stick to SIPs. This is because mid- and small-caps are vulnerable to bouts of volatility while SIPs could help retail investors take advantage of lower prices.