Saturday, April 1, 2023
HomeMutual FundsActively managed mid cap mutual funds also struggle to beat the index!

Actively managed mid cap mutual funds also struggle to beat the index!

Many investors incorrectly believe that index funds are necessary only in the large cap space and that active funds easily beat the index in the mid cap and small cap segments.  In this article, we bust this myth with rolling returns and trailing results comparison of active mid cap mutual funds with Nifty Midcap 150 TRI.

First, let us compare trailing returns as of Oct 7th 2022. The March 2020 market crash acted as a reset for mid cap and small cap stocks. Midcap indices that were south-bound since early 2018 made a sharp recovery. So how have active midcap funds fared?

  • Trailing one year:  Only 13 out of 26 midcap funds beat the Nifty Mid cap 150 TRI
  • Trailing two years: Only 9 out of 24 midcap funds beat the Nifty Mid cap 150 TRI.
  • Trailing three years: 8 out of 23 midcap funds beat the Nifty Mid cap 150 TRI.
  • Trailing four years: 12 out of 22 midcap funds beat the Nifty Mid cap 150 TRI.
  • Trailing five years: 10 out of 21 midcap funds beat the Nifty Mid cap 150 TRI.
  • Trailing six years: 7 out of 20 midcap funds beat the Nifty Mid cap 150 TRI.
  • Trailing seven years: 6 out of 20 midcap funds beat the Nifty Mid cap 150 TRI.
  • Trailing eight years: 7 out of 20 midcap funds beat the Nifty Mid cap 150 TRI.
  • Trailing nine years: 10 out of 18 midcap funds beat the Nifty Mid cap 150 TRI.

Typically 50% or less than 50% of the actively managed mid cap funds beat a standard category benchmark. So it is baseless to assume it is “easy” to beat the index in the mid cap space!

We refer to our Equity Mutual Fund Screener Oct 2022 for rolling return analysis.

Rolling return outperformance consistency: the fund returns are compared with category benchmark returns over every possible 1Y, 2Y, 3Y,4Y, and 5Y period. Higher the outperformance consistency, the better. Suppose 876 fund returns were compared with 876 benchmark returns, and the fund has beaten the benchmark 675 times. The consistency score will be 675/876 ~ 77%.

  • Rolling returns over three years: Only 4 out of 23 funds outperformed the Nifty Midcap 150 TRI by 70% or more over the rolling return periods considered.
  • Rolling returns over four years: only 3 out of 22 funds (same condition)
  • Rolling returns over five years: only 4 out of 20 funds (same condition)

So this underperformance is not a flash in the pan! It is consistent! Bull market or bear market, active mid cap fund managers, have struggled to beat a market capitalization-weighted mid cap index.

In addition, active midcap mutual funds wrt Nifty Next 50 has also been poor: Only four midcap mutual funds have outperformed Nifty Next 50 consistently. This is why we stopped including mid cap funds in our Handpicked List of Mutual Funds Oct-Dec 2022 (PlumbLine)

So what is the alternative? There is, of course, no compulsion to invest outside the Nifty/Sensex! If you wish to, then we recommend not choosing midcap index funds! Their tracking errors and tracking differences are too high, at least at the time of writing. See: Index fund tracking error screener October 2022. Also, see: Not all index funds are the same! Beyond the top 100 stocks tracking errors are huge!

Although the Nifty Next 50 has recently fallen behind the Nifty Midcap 150 for the first time*, it is still a good replacement for active mid cap funds and even a mid cap index. As established earlier, Nifty Next 50 should not be mistaken for a large cap index* For more recent data, see: Tata Nifty Midcap 150 Momentum 50 Index Fund Review

One can combine Nifty & Nifty Next 50 funds to create large, mid cap index portfolios. Of course, the Nifty Next 50 can be a frustrating index to buy, but that is true of mid cap indices too.

Do share this article with your friends using the buttons below.

Use our Robo-advisory Excel Tool for a start-to-finish financial plan! More than 1000 investors and advisors use this!

  • Follow us on Google News.
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Join our YouTube Community and explore more than 1000 videos!
  • Have a question? Subscribe to our newsletter with this form.
  • Hit ‘reply’ to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.


Explore the site! Search among our 2000+ articles for information and insight!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.

  Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.

Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   

Our new book for kids: “Chinchu gets a superpower!” is now available!

Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.

Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!

Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!

Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. – Arun.

Buy the book: Chinchu gets a superpower for your child!

How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!

Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!

We publish monthly mutual fund screeners and momentum, low volatility stock screeners.

About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)

Connect with us on social media

Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)


latest articles

explore more


Please enter your comment!
Please enter your name here