MF Tracker: HDFC Mid Cap Fund delivers 20% in 5-years. Can the largest midcap fund sustain performance?

HDFC Mid Cap Fund, the largest mid cap mutual fund based on the assets managed, has delivered the second highest return in the last five years of around 20%. The important thing to know is will this streak continue going forward?

Launched on June 25, 2007, the scheme is given five star rating by ValueResearch and four star rating by Morningstar.

Based on the trailing returns, the scheme has consistently managed to outperform its benchmark and category average across longer time periods whereas has managed to deliver at performance or underperform the benchmark and category average in shorter time periods.


In the last three months, the scheme gave 8.06% against 5.52% by the benchmark and 8.19% as the mid cap category average. In the last six months, the fund gave 3.74% compared to 5.77% by the benchmark and 8.05% as the category average. In the last one year, the fund gave 10.07% compared to 10.55% by the benchmark and 10.27% as the category average.

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The mid cap fund gave 19.45% in the last three years compared to 18.74% by the benchmark and 18.52% as the category average. The fund posted a gain of 20.04% in the last five years compared to 18.26% by the benchmark and 16.12% as the category average. In the ;ast 10 years, the fund delivered a return of 17.01% compared to 17.66% by the benchmark and 15.71% as the category average.

On the basis of yearly returns for the last 10 years, the scheme has offered a negative return in 2018 of around 11.20%. The mid cap scheme gave the highest return in 2023 of around 44.47%.

What does the fund manager say on this mid cap fund?

Chirag Setalvad, Head - Equities, HDFC AMC told ETMutualFunds that the fund has consistently run in a similar manner. Firstly, we lay emphasis on business quality and tend to hold onto our investments for an extended time frame allowing the power of compounding to work in our favour.

“We look for companies with a durable competitive position, prudent capital allocation, and the ability to generate cash across cycles. Secondly, we focus on managements that execute well and whose interests are aligned with that of minority shareholders.”

Finally, we try to maintain a margin of safety by avoiding excessively valued companies while also buying into companies and industries that are facing transient adversity; equally important is that we aim to mitigate big mistakes by staying away from businesses that we can't fully understand, ignoring fads and avoiding businesses with governance issues, Setalvad further said.

Expert comment on fund performance

Bharath Rathore, Executive Director, Anand Rathi Wealth Limited analysed the performance and told ETMutualFunds that in recent years, HDFC Mid-Cap Opportunities Fund has stood out as one of the top-performing funds in the category with 4% alpha over the category average and nearly 3% over its underlying benchmark and the performance is has been driven by multiple factors like its high conviction stock selection and its buy-and-hold approach, in fact if we see the fund’s portfolio turnover ratio for July 2026 it was stood at 0.02x against 1.02x for the category average and its experienced fund management .

However, for existing investors, strong past returns should not be a reason to make their investment decisions, instead investors should assess their overall mid cap exposure and target asset allocation. If the allocation remains within the desired range and the investment horizon is long term, investors can continue their SIPs, Rathore further said.

If an investor invested Rs 10,000 in the fund through SIP at the time of inception, the current value would have been Rs 1.91 crore with an XIRR of 19.28%. In the last 10 years, the same SIP amount would have been Rs 33.26 lakh with an XIRR of 19.47%.

The same amount would have been Rs 9.61 lakh in the last five years with an XIRR of 19.16%. In the last three years, the amount would have been Rs 4.90 lakh with an XIRR of 21.67%.

A lumpsum investment of Rs 1 lakh in the fund at the time of inception would have been 21.27 lakh with a CAGR of 17.30%. In the last 10 years, the same amount would have been Rs 4.78 lakh with a CAGR of 16.94%.

In the last five years, the lumpsum amount would have been Rs 2.49 lakh with a CAGR of 20.05%. In the last three years, the lumpsum amount would have been Rs 1.70 lakh with a CAGR of 19.46%.

Also Read | HDFC Mid Cap Fund hits Rs 1 lakh crore AUM milestone; delivers 17% CAGR since inception

Portfolio allocation and impact of large AUM

The mid cap fund had an allocation of 10.39% in large caps, 65.11% in mid caps, 17.56% in small caps and 6.93% in others as on July 31, 2026. The fund had the highest AUM in the mid cap category as of July 2026 of Rs 1.05 lakh crore. The fund is the third largest active fund based on assets managed post Parag Parikh Flexi Cap Fund and HDFC Balanced Advantage Fund.

In June 2026, the fund house said that HDFC Mid Cap Fund crossed Rs 1 lakh crore in Assets Under Management (AUM) and became one of the largest and oldest funds in the mid-cap category.

The fund house then said that through its journey, the fund has sought to identify businesses with growth potential and participate in India's evolving economic growth story through a disciplined and research-driven investment approach.

So can the large size make it difficult to generate the same returns as smaller mid-cap funds and could HDFC Midcap Fund face challenges in finding enough attractive mid-cap opportunities?

Rathore said that Investors should understand that large AUM does not reduce a fund’s ability to generate strong performance in long-term, in fact when we look at fund performance across years, there is no any pattern where bigger funds consistently underperform and in the same category and in the same year, higher AUM funds have delivered both strong and weak returns, which indicates that size alone is not the deciding factor to evaluate fund future performance.

However, the fund may face some constraints in smaller opportunities, but its ability to invest across the broader mid-cap universe and its long-standing investment process will help to mitigate the impact of its size, the expert further said.

Risk ratios and sectoral allocation

In comparison to the mid cap category, the scheme is overweight on small caps and others. The mid cap category on an average had 15.68% in large caps, 66.28% in mid caps, 4.56% in others and 13.48% in small caps.

The fund had the highest allocation in the banking sector of around 15.79% compared to 9.65% by the category. In the automobile and ancillaries sector, the scheme had an exposure of 15.41% against 10.57% by category. Among the top 10 sector holding, the mid cap fund is overweight on banks, automobile & ancillaries, healthcare, IT, FMCG, and crude oil.

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Based on the last three years, the scheme gave a Treynor ratio of 1.55 and an alpha of 0.20. The sortino ratio of the scheme was recorded at 0.59. The return due to net selectivity was recorded at 0.17 and return due to improper diversification was recorded at 0.03 in the last three years.

Based on the last three years, the scheme gave a Treynor ratio of 1.59 and an alpha of 1.34. The sortino ratio of the scheme was recorded at 0.66. The return due to net selectivity was recorded at 1.16 and return due to improper diversification was recorded at 0.18 in the last three years, according to the market outlook by Axis Mutual Fund.

Time to choose mid caps?

Rathore said that after the recent market correction, valuations across the segments have become more reasonable, with negative froth of 10 to 14% across market cap indices which creates an attractive environment to invest for long-term investors. Additionally, the recent earnings report provides strong fundamental support with mid-cap and small-cap companies delivering 30% and 38% YoY earnings growth respectively in Q1 FY27.

From an allocation perspective, investors with a long-term horizon of greater than 3 to 5 years with market cap mix of 55:23:22 across large, mid and small caps of their overall equity portfolio exposure and importantly investors should assess their overall mid-cap exposure on a total portfolio basis, including the indirect mid-cap exposure in diversified equity funds, Rathore further said.

Others in mid cap basket

Around 20 funds in the category completed three years of existence, of which Invesco India Midcap Fund delivered the highest return of around 18.18%, followed by Edelweiss Mid Cap Fund which gave 17.94% in the last 10 years.

Aditya Birla SL Midcap Fund delivered the lowest return in the mid cap category of around 13.39% in the last 10 years.

Rathore said that Going further our outlook remains constructive with strong recovery in earnings momentum & attractive valuations. However, investors are suggested to avoid excessive allocation to mid & small caps based on their recent performance, as these segments have historically experienced higher volatility and sharper drawdowns during uncertain markets.

Therefore, investors are suggested to follow a strategy based allocation of 55% to large caps and the remaining across mid and small caps, which can provide greater stability and liquidity, reduce concentration risk and help investors ride across different market cycles, he further said.

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HDFC Mid-Cap Opportunities Fund is an open ended equity scheme predominantly investing in mid cap stocks. The investment objective of the scheme is to provide long-term capital appreciation/income by investing predominantly in mid-cap companies.

The scheme is benchmarked against NIFTY MIDCAP 150 (TRI) and is managed by Chirag Setalvad.

One should always choose a scheme based on risk appetite, investment horizon, and goals.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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