Is it the right time to start new investments in midcap funds?

Investors in midcap mutual funds have lost over 10 per cent in the last one month. Sure, other equity mutual fund categories were also hit by uncertainties on the home front and abroad, but the fall was more pronounced in midcap and smallcap segments due to a variety of reasons.

Devendra Nevgi, CEO, ZyFin Funds, says the midcap category has fell the most because some of these stocks were extremely overvalued. Some of them were also high-beta stocks that tend to plumb depths when the market hits bottom. Demonetisation is also casting a shadow on some companies that lean heavily on cash.

What is in store?

“Merit-driven midcap stocks are likely to bounce back with positive returns, but the story-driven stocks will probably take more time,” says Deven Choksey, Promoter, KRChoksey group.

Merit-driven midcap stocks are backed by strong fundamentals. They do not get beaten by temporary market hiccups for a very long time. However, the situation could be very different for stocks which are driven purely by positive word of mouth, adds Choksey.

What should investors do?
Dhaval Kapadia, Director, Morningstar Investment Adviser, believes that economic revival will approximately take a year and a half to materialise.

“The earnings should start reviving and growing as per the expectations in the long term. If your investment horizon and the risk profile permit, you should continue holding your investments provided that you are with a quality fund in the category,” adds Kapadia.

Midcap funds are a long term bet. You should invest in them only if you have an investment horizon of five to seven years. You should not panic during a turmoil in the market turmoil. Pick a midcap scheme with a good performance record and leave the job of managing your money and tackling the market to your fund manager.

“This is probably the right time to start new investments in the midcap funds. Assess your horizon, risk profile and stagger the investments over a period of six to nine months. And be wise enough in choosing the right fund in the category,” says Kapadia.