UTI Mid Cap Fund: Benefit From The Market’s Potential Sweet Spot

In contrast to biological life cycle, companies do go through periods of growth and saturation. Mid cap companies capture a period in the typical business life cycle, wherein companies have successfully navigated the phase inherent to small companies, such as raising initial capital, managing early growth challenges, however, these companies are likely to sustain leadership, operate with significant moat, and they are not so large enough that their ability to fast grow is disparaging. Therefore, mid-cap companies can offer a sweet spot between fast-growing small businesses and well-established large companies.

Mid cap stocks fall in between large cap and small cap stocks and are typically determined based on the market capitalization of the companies. As defined by SEBI, 101st to 250th company by full market capitalization are mid cap stocks. A mid cap fund predominantly invests in mid cap stocks with a minimum of 65% of the fund’s corpus in equity & equity related instruments of mid cap companies.

The Funds investing in mid cap companies provide investor an opportunity to cover broader market capitalization helping in portfolio diversification and also an opportunity to take part in growth stories of medium sized businesses. However, investors should take cognizance of its inherent risks, as both risk and reward potential of mid cap funds are relatively higher than that of well-diversified growth funds.

UTI Mid Cap Fund is an open ended equity scheme investing predominantly in mid cap companies. The Fund’s strategy focuses on investing in companies with scalable business models and long growth runway, the fund is also open to investing in good companies whose business/s are going through transitory phase of weakness OR undergoing a transformational change. The Fund pursues pure bottom-up stock selection approach to pick businesses with healthy financials and potential for sustenance of margins over a period of time. The Fund is also a well-diversified portfolio with about 70 stock covering various sectors and industries.

The Fund’s inception was on April 7, 2004 and has an AUM of over Rs. 6,200 crores with over 3.60 lakhs of unit holder accounts as of July 31, 2021. The Fund is a true to label product, therefore would prefer to have an allocation in mid cap and small cap companies in the range of 85-90% in the portfolio at all point in time. The Fund has about 67% invested into mid cap companies, 20% into small cap companies and remaining in large cap companies as on July 31, 2021. The scheme’s top holding consists of SRF Ltd., Mphasis Ltd., PI Industries Ltd., Jubilant Foodworks Ltd., Cholamandalam Investment and Financial Services Ltd., Crompton Greaves Consumer Electronics Ltd., Gujarat Gas Ltd., Tube Investments of India Ltd., Bharat Forge Ltd., and Astral Ltd. which accounts for about 27% of the portfolio’s holdings.

The Fund with its diversified exposure aims to strike a balance between risk and reward by following a patient approach towards companies in the portfolio and with right mix of companies with Return on Capital Employed (RoCE) and Cash flow profile. This is likely to aid in mitigating sharp return divergence and volatility of the portfolio.

UTI’s rich experience in research and fund management, coupled with coverage of large cross section of companies in mid and small cap universe will help the Fund in picking quality stocks and also avoid the poor ones.

UTI Mid Cap Fund is suitable for investors looking for an investment in a portfolio predominantly investing in mid cap companies and looking to supplement their core equity portfolio with its underlying growth potential.