Comprehensive Analysis of Motilal Oswal Midcap Regular Growth Fund

Introduction

Investing in mid-cap funds can offer significant opportunities for long-term wealth creation. One such standout option is the Motilal Oswal Midcap Regular Growth Fund, a top performer in the Indian OE Small/Mid Cap category. With its focus on mid-cap companies exhibiting competitive advantages, this fund aims to achieve sustained capital appreciation for investors.

Key Features and Objectives

The Motilal Oswal Midcap Regular Growth Fund seeks to generate long-term capital growth by investing in quality mid-cap stocks with robust growth potential. However, the fund does not guarantee returns, as its performance is subject to market risks. It boasts a Morningstar rating of 5 Stars, indicating its strong past performance and reliability compared to peers.

Fund Details

Category: India OE Small/Mid Cap
Benchmark: BSE Midcap TR INR
Fund Benchmark: Nifty Midcap 150 TR INR
Inception Date: February 24, 2014
Manager Name: Niket Shah (since July 2020)

Performance Overview

The fund’s performance metrics highlight its ability to outperform both its benchmark and category averages over different time horizons.

Annualized Trailing Returns

3 Month: 7.10% (Fund) vs. -5.96% (Benchmark)
6 Month: 36.56% (Fund) vs. 8.14% (Benchmark)
1 Years: 61.19% (Fund) vs. 35.75% (Benchmark)
3 Years: 35.43% (Fund) vs. 24.50% (Benchmark)
5 Years: 33.06% (Fund) vs. 26.43% (Benchmark)

Yearly Returns

The fund has consistently delivered impressive returns, with 2024 year-to-date returns at 51.37%, compared to 26.23% for the benchmark. Such stellar performance positions it as a go-to choice for aggressive growth-seeking investors.

Risk Metrics

3-Year Alpha: 11.87 (indicating excess returns generated over the benchmark)
3-Year Beta: 0.80 (reflecting lower volatility compared to the market)
Sharpe Ratio (3Y): 1.67 (denoting favorable risk-adjusted returns)
Standard Deviation (3Y): 15.45% (This indicates the portfolio’s volatility over the past three years. A standard deviation of 15.45% means the portfolio’s returns have varied by this percentage from its average return, reflecting its risk.)
3Y R-Squared: 66.01% (An R-squared of 66.01% shows that 66.01% of the portfolio’s performance is explained by its benchmark, with the remaining 33.99% driven by factors unique to the portfolio.)
3Y Info Ratio: 1.14 (The information ratio of 1.14 suggests the portfolio has delivered 1.14 units of excess return per unit of risk relative to its benchmark, indicating good risk-adjusted performance.)
3Y Tracking Error: 9.47% (A tracking error of 9.47% shows how closely the portfolio’s returns have followed its benchmark, with higher values indicating more deviation.)
3Y Risk: Above Average (This indicates the portfolio has a higher level of risk compared to a typical investment, based on factors like volatility and deviation from its benchmark.)
5Y Risk: High (Over five years, the portfolio’s risk is considered high, indicating significant fluctuations or potential losses.)
10Y Risk: High (Similarly, over a ten-year period, the portfolio’s risk remains high, implying greater exposure to market swings or volatility.)

Trailing Returns

The Motilal Oswal Midcap Regular Growth Fund has shown robust performance in its trailing returns over the past few years. In the 3-month period, the fund delivered a return of 7.10%, significantly outperforming its benchmark, which posted a decline of -5.96%.

Over the 6-month period, the fund surged by 36.56%, compared to the benchmark’s modest 8.14%. Looking at the 1-year period, the fund delivered an outstanding 61.19%, outperforming the benchmark’s return of 35.75%.

For 3 years annualized, the fund achieved a return of 35.43%, surpassing the benchmark’s 24.50% and the category’s 22.99%. Over the 5-year period, the fund maintained a solid performance of 33.06%, while its benchmark earned 26.43%.

Quarterly Returns

The Motilal Oswal Midcap Regular Growth Fund demonstrated impressive quarterly returns in recent years.

In Q1 2024, the fund gained 10.57%, followed by a strong 20.64% return in Q2 2024, showcasing its resilience and growth potential. The fund continued its positive momentum in Q3 2024, with a 12.56% return.

In 2023, the fund saw varied quarterly performance: Q1 2023 experienced a -2.30% decline, but it quickly recovered with 17.90% in Q2 2023, and 7.50% in Q3 2023, concluding the year with a 14.43% return in Q4 2023.

In 2022, the fund experienced some volatility, with Q1 2022 and Q2 2022 posting negative returns of -1.68% and -5.94% respectively. However, it bounced back strongly in Q3 2022, with a 22.44% return, before dipping again in Q4 2022 to -2.24%. This periodic volatility reflects the fund’s exposure to the mid-cap segment, which can experience sharper fluctuations but also higher growth opportunities.

The fund’s ability to balance high returns with controlled risk makes it a compelling choice for seasoned investors.

Portfolio Composition

The fund maintains a concentrated equity portfolio, with 97.6% allocation to stocks and a minor allocation to cash for liquidity. Its investment strategy prioritizes growth-oriented sectors and mid-cap companies.

Top Sector Allocations

Cyclical Sectors: 45.61% (e.g., Consumer Cyclical at 29.55%)
Sensitive Sectors: 49.07% (e.g., Technology at 25.85%)
Defensive Sectors: 5.33% (primarily Healthcare)

Geographic Focus

The portfolio is exclusively invested in Greater Asia, with 100% exposure to emerging Asian markets, showcasing its commitment to India’s dynamic growth story.

Top Holdings

The fund’s top ten holdings account for 70.69% of the portfolio, reflecting its focused investment approach. Key contributors include:

Coforge Ltd: 9.88% (Technology)
Kalyan Jewellers India Ltd: 9.50% (Consumer Cyclical)
Polycab India Ltd: 9.29% (Industrials)
Persistent Systems Ltd: 8.04% (Technology)
Jio Financial Services Ltd: 8.04% (Financial Services)

The fund’s bias toward technology and industrials signals its confidence in India’s evolving economy and digital transformation.

Investment Style and Strategy

The fund predominantly adopts a growth-oriented strategy, investing in companies with strong fundamentals, innovative capabilities, and market leadership. This is evident in its equity style box classification, which emphasizes growth over value across mid to large-cap segments.

Market Capitalization Breakdown

Giant Companies: 24.43%
Large Companies: 73.98%
Medium Companies: 1.59%

Such diversification ensures the fund remains stable while capitalizing on high-growth opportunities in mid-cap companies.

Operational Insights

Fund Size: ₹200,556.81 million (as of October 31, 2024)
NAV: ₹110.60 (as of December 4, 2024)
Expense Ratio: 1.62%

The fund’s low entry requirements, with a minimum purchase amount of ₹500, make it accessible for retail investors.

Reasons to Invest

1. Strong Performance History

The fund’s impressive track record of outpacing its benchmark and peers highlights its robust investment strategy.

2. Diversified Sector Exposure

With allocations spanning cyclical, sensitive, and defensive sectors, the fund provides balanced exposure to growth opportunities across industries.

3. Risk-Adjusted Returns

Metrics like a low beta and high Sharpe ratio signify the fund’s ability to deliver superior returns with controlled risk.

4. Expert Management

Under the stewardship of Niket Shah, the fund has consistently adapted to market dynamics, ensuring sustained growth.

Considerations for Investors

While the fund offers compelling returns, investors should remain mindful of its high-risk nature, as highlighted by its 5-year and 10-year risk ratings. Additionally, past performance does not guarantee future success, and market volatility can impact returns.

Exit Load Structure

1% for redemptions within 1 year
0% for redemptions beyond 1 year

This structure incentivizes long-term investments, aligning with the fund’s objectives.

Conclusion

The Motilal Oswal Midcap Regular Growth Fund is an excellent choice for investors looking to leverage India’s mid-cap growth story. Its stellar performance, strategic asset allocation, and focus on high-growth sectors make it a standout option in the small/mid-cap category. However, investors should consult financial advisors to ensure alignment with their risk tolerance and financial goals.

FAQs

1. Who should invest in this fund?

Investors with a long-term horizon seeking high growth through mid-cap stocks should consider this fund.

2. What is the minimum investment amount?

The fund requires a minimum investment of ₹500.

3. What are the fund’s key risk factors?

As a mid-cap-focused fund, it carries high market risk and volatility, requiring a risk-tolerant investment approach.

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