May 28, 2024

UTI Mid Cap Fund: Benefit from the Market’s Potential Sweet Spot

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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 that their ability to growfast is disparaging. Therefore, mid-cap companies can offer a sweet spot between fast-growing small businesses and well-established large companies.

Midcap stocks fall between large cap and small cap stocks and are typically determined based on the market capitalization of the companies. As defined by SEBI, 101stto 250thcompany by full market capitalization aremid cap stocks. A midcap fund predominantly invests a minimum of 65% of the fund’s corpus in equity & equity related instruments of mid cap companies.

The Funds investing in midcap companies provide investors an opportunity to benefit fromthe growth stories of medium sized businesses.However, investors should take cognizance of their inherent risks, as both risk and reward potential of midcap funds are relatively higher than that ofwell-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 a long growth runway. The Fund is also open to investing in good companies whose businesses are going through a transitory phase of weakness or undergoing a transformation.The Fund pursues a pure bottom-up stock selection approach to pick businesses with healthy financials andpotential for sustenance of margins over a period of time. The Fund also has a well-diversified portfolio with about 73 stocks covering various sectors and industries.

The Fund came into existence on April 7, 2004 and has an AUM of over Rs. 7,300crores with over 4.50 lakhs of unit holder accounts as of November 30, 2022. The Fund is a true to label product and 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 points in time. The Fund has about 71% invested into midcap companies, 18% into small cap companies and the remaining in large cap companies as on November 30, 2022. The scheme’s top holdings consist of Tube Investments of India Ltd., Cholamandalam Investment and Finance Co. Ltd.,Federal Bank Ltd.,PI Industries Ltd., Shriram Transport Finance Co. Ltd., Bharat Forge Ltd., City Union Bank Ltd., J K Cement Ltd., APL Apollo Tubes Ltd. and Schaeffler India Ltd.,which accounts for about25% 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 the right mix of companies with a strong 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 the coverage of large cross section of companies in the 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 inmid cap companies andwilling to supplement their core equity portfolio with its underlying growth potential.