Midcap funds invest in emerging stocks that have the potential to become bluechips of tomorrow. While they have underperformed their large-cap peers over the past few months, they may potentially deliver superior returns and even outperform over the long term.
These funds do especially well during bull markets and strong economic growth.
However, these funds can become witness to high volatility during the state of indefinite and recession, making them only appropriate to investors with high risk tolerance.
HDFC Mid Cap Fund is a popular mid cap fund. It is known for its sound investment approach and the ability to reward long-term investors with noteworthy gains.
Fund Overview
Launched in June 2007, HDFC Mid Cap Fund (earlier HDFC Mid-Cap Opportunities Fund) has solidified its position in the mid cap fund category by consistently delivering above-average returns.
As of May 2025, the fund had assets under management worth Rs 797 billion (bn), the highest in the mid cap fund category.
The fund is managed by Chirag Setalvad, the head of equities at HDFC AMC, since the inception of the scheme.
HDFC Mid Cap Fund – Snapshot
| Inception Date | 25-Jun-07 | SI Return (CAGR) | 19.97% |
| Corpus (bn) | Rs 797 | Min. Lumpsum / SIP | Rs 100 / Rs 100 |
| Expense Ratio (Dir/Reg) | 0.77% / 1.4% | Exit Load | 1% |
Source: ACE MF
Investment Strategy
Categorised under midcap funds, HDFC Mid Cap Fund is mandated to invest at least 65% of its assets in equity & equity-related instruments of mid-sized companies.
These companies are defined as those ranking 101st to 250th on full market capitalisation basis.
The fund invests in stocks that have reasonable growth prospects, sound financial strength, sustainable business models, and are available at acceptable valuations.
It follows the bottom-up approach to identify high-quality businesses for the long term.
Following a buy-and-hold investment strategy, the fund manager avoids unnecessary portfolio changes and refrains from chasing momentum.
In the last one year, the fund had a low turnover ratio of around 20-30%, which reflects the strong long-term conviction the fund manager has when picking stocks for the portfolio.
Moreover, the fund is cautious in its approach, which helps it to perform well even during uncertain market phases.
The fund usually remains fully invested across market cycles, taking very limited cash calls.
Historical Returns
HDFC Mid Cap Fund experienced a challenging phase between 2016 and 2021, during which it struggled to outperform the benchmark.
However, the fund has staged a remarkable comeback in recent years, delivering significant gains.
On a rolling 3-year return basis, the fund has outperformed the benchmark – Nifty Midcap 150 – TRI – and the category average by an impressive margin of 4-5%.
Over the longer 5-year period, the fund has generated a decent lead over the benchmark while outperforming many of its peers.
HDFC Mid Cap Fund – Performance
| 1 Yr (%) | 3 Yr (%) | 5 Yr (%) | Std Dev | Sharpe | Sortino | |
| HDFC Mid Cap Fund | 28.38 | 28.09 | 30.93 | 14.56 | 0.50 | 1.09 |
| Category Average | 29.29 | 23.15 | 28.81 | 15.87 | 0.38 | 0.78 |
| Nifty Midcap 150 – TRI | 26.37 | 24.14 | 29.91 | 16.33 | 0.40 | 0.82 |
Source: ACE MF
Risk Profile
The volatility registered HDFC Mid Cap Fund is among the lowest in the category and is much lower than the benchmark.
The fund stands out for its superior risk-adjusted returns, as reflected in its remarkable Sharpe and Sortino ratios.
These metrics highlight the fund’s ability to generate impressive returns while managing risks better than both its benchmark and category peers.
Portfolio
HDFC Mid Cap Fund usually holds a large portfolio of 65-75 stocks and has limited the exposure in single stock to well within the 5% mark.
As of May 2025, the fund held 76 stocks with top holdings in Max Financial Services (4.8%), Federal Bank (3.2%), and Coforge (3.2%).
In the previous month, the fund manager did not add any fresh allocation but completely exited Mahindra Holidays & Resorts India, Max Healthcare Institute, and Power Finance Corporation.
The portfolio is dominated by auto ancillaries, bank, infotech, healthcare, and finance that form 57% of its assets.
The fund invests primarily in midcaps (around 65% of its assets), along with 14-22% in small caps and 5-15% in large caps.
As of May 2025, the fund has an allocation of 64.3% to mid-cap stocks, 5.4% to large-cap stocks, 20.6% to small-cap stocks, and the balance in cash.
Conclusion
HDFC Mid Cap Fund has consistently shown strong performance across bullish and bearish market conditions.
The fund’s focus on fundamentally sound stocks having healthy growth prospects allows it to benefit from their long-term potential.
By emphasising stocks with a reasonable margin of safety the fund has been successful in limiting the downside risk.
It maintains diversification across a range of stocks and sectors and adopts a prudent investment approach, helping it adapt well despite its large corpus.
The fund is led by a high-conviction-oriented fund manager who is a veteran in the mid and small cap space.
However, the fund may underperform in the short run when the market is momentum-driven.
Happy investing.
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