ITI Mid-Cap Fund: Investing in Potential Midcap Companies for Growth - Outside View by PersonalFN

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ITI Mid-Cap Fund: Investing in Potential Midcap Companies for Growth
Feb 26, 2021

As the name indicates, Midcap mutual funds are equity-oriented mutual funds that invest at least 65% of its assets in equity and equity related instruments of mid-cap companies. These companies are ranked from 101 to 250 in terms of market capitalization.

The Midcap companies have witnessed underperformance in markets between 2018 and early 2020s due to various reasons like decline in GDP, demonetization, implementation of Goods and services tax (GST), and the recent pandemic hit.

However, over the past few months the expectation of economic recovery has attracted investors to the mid cap segment since the fortunes of mid cap companies are closely tied to the economy. Consequently, mid cap funds have witnessed improvement in performance. Additionally, Union Budget FY 2021-22 announced various growth measures that are expected to bring positive results for mid-cap companies.

ITI Mutual Fund house is of the view that with improving growth, mid-caps are likely to see strong improvement in revenues and profitability considering which it has launched ITI Mid-cap Fund an open-ended equity scheme that predominantly invests in mid-cap stocks to achieve the investment objective of generating long-term capital appreciation.

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However, there can be no assurance that the investment objective of the scheme would be achieved.

Table 1: Details of ITI Mid-cap Fund
Type An open-ended equity scheme predominantly investing in mid-cap stocks. Category Midcap Fund
Investment Objective The investment objective of the Scheme is to seek to generate long-term capital appreciation by predominantly investing in equity and equity related securities of mid-cap stocks.
However, there can be no assurance that the investment objective of the scheme would be achieved.
Min. Investment Rs 5,000 and in multiples of Re 1/- thereafter. Additional Purchase Rs. 1000/- and in multiples of Rs. 1 thereafter. Face Value Rs 10/- per unit
  • Direct
  • Regular
  • Growth
  • Dividend
Entry Load Not Applicable Exit Load
  • 1% if redeemed or switched out on or before completion of 12 months from the date of allotment of units;
  • Nil, if redeemed or switched out after completion of 12 months from the date of allotment of units.
Fund Manager - Mr George Heber Joseph
- Mr Pradeep Gokhale
Benchmark Index Nifty Mid-cap 100 TRI
Issue Opens: February 15, 2021 Issue Closes: March 01, 2021
(Source: Scheme Information Document)

What will be the Investment Strategy for ITI Mid-cap Fund?

ITI Mid-cap Fund will invest predominantly in Equity and Equity Related Instruments of Mid-cap companies, which in the opinion of the Fund Manager offers superior risk reward payoff.

The scheme will follow a bottom-up approach of stock selection to pick good and sound businesses. While picking stocks the scheme will look for the following:

  • Quality and scalability
  • Sound balance sheet
  • Good corporate governance and sound track record
  • Strong market share gains or niche segment leadership
  • Capable of sustaining good ROEs and ROCEs
  • Attractive valuations

ITI Midcap Fund will hold maximum 60 stocks in its portfolio. The scheme will aim to be fully invested in equities with no major cash calls. At least 80% of the portfolio will be of 'core' stocks while the tactical bets will not be more than 20%.

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The scheme may also invest in equity and equity related securities other than mid caps to achieve optimal portfolio construction. It also has the flexibility to invest a certain portion of its corpus in debt and money market securities.

Under normal circumstances, the asset allocation will be as under:

Table 2: Asset Allocation of ITI Mid-cap Fund
Instruments Indicative Allocations
(% of Net Assets)
Risk Profile
Minimum Maximum
Equity and Equity related instruments of mid-cap companies** 65 100 High
Equity and Equity related instruments of other than mid-cap companies 0 35 High
Debt and Money Market Instruments 0 35 Low to Medium
Units issued by REITs and InvITs 0 10 Medium to High
**Investment universe of Mid-cap: The investment universe of "Mid-cap" shall comprise companies as defined by SEBI from time to time.
(Source: Scheme Information Document)

Who will manage ITI Mid-cap Fund?

ITI Mid-cap Fund will be co-managed by Mr George Heber Joseph and Mr Pradeep Gokhale dedicated for making overseas investments.

Mr George Heber Joseph is CEO & CIO at ITI Asset Management Ltd. and has over 17 years of experience. Prior to this, Mr Joseph was associated with ICICI Prudential AMC as Senior Fund Manager and he worked with organizations like DSP Merrill Lynch Ltd, Wipro Ltd, MetLife India, Cholamandalam Investments & Finance Company Ltd and Tanfac Industries Ltd where he has handled fund management and corporate treasury responsibilities.

His qualifications includes, ACA, ACMA, Bachelor of Arts - English language and literature and Currently schemes co-managed by him are; ITI Liquid Fund, ITI Multi Cap Fund, ITI Long Term Equity Fund, ITI Arbitrage Fund, ITI Overnight Fund, ITI Balanced Advantage Fund, ITI Small Cap Fund, ITI Banking & PSU Debt Fund and ITI Large-cap Fund.

Mr Pradeep Gokhale is Head - Equity at ITI Asset Management Ltd. and has over 24 years of experience. Prior to this, Mr Gokhale was working with Tata Asset Management Ltd. as Senior Fund Manager - Equities. He was even associated with CARE Ratings Ltd. as Head of Financial Sector and Securitization Ratings, with corporate finance departments of companies like Bombay Dyeing, Tata International and Lubrizol India Ltd.

His qualifications includes, CA and CFA, currently schemes under his co-management are; ITI Multi Cap Fund, ITI Long Term Equity Fund, ITI Balanced Advantage Fund, ITI Small Cap Fund and ITI Large-cap Fund.

Fund Outlook - ITI Mid-cap Fund

ITI Mid-cap Fund will be focused on investing in key sectors, which are growth oriented to achieve the investment objective of generating better risk-adjusted returns over its peers.

ITI Midcap Fund will invest minimum 65% of its assets in mid-cap stocks, which are prone to high volatility. Mid-cap funds are known to outperform large cap funds in the bull phases. But do note that Mid-cap funds are not as resilient during bear phases and may plunge lower than large-cap funds.

Even though mid cap funds are expected to outperform large cap funds it is important to remain cautious about your investments in mid-cap funds. Conservative investors and those with moderate risk appetite should ideally avoid investing in mid cap funds.

If you are an aggressive retail investor looking for mid-cap mutual fund schemes, you must have a long-term investment horizon of 5-7 years and a high-risk tolerance to survive the market volatility in mid-cap space. Before investing in mid-cap funds, you must analyse the qualitative and quantitative parameters for worthy fund selection of mid-cap funds to invest in 2021.

PS: If you wish to select worthy mutual fund schemes, I recommend that you subscribe to PersonalFN's unbiased premium research service, FundSelect.

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Author: Mitali Dhoke

This article first appeared on PersonalFN here.

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PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


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