May 29, 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 grow fast 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 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 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 investors an opportunity to benefit from the growth stories of medium sized businesses. However, investors should take cognizance of their 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 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 and potential for sustenance of margins over a period of time. The Fund also has a well-diversified portfolio with about 72 stocks covering various sectors and industries.

The Fund came into existence on April 7, 2004 and has an AUM of over Rs. 7,200 crores with over 4.50 lakhs of unit holder accounts as of December 31, 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 68% invested into mid cap companies, 19% into small cap companies and the remaining in large cap companies as on December 31, 2022. The scheme’s top holdings consist of Tube Investments of India Ltd., Cholamandalam Investment and Finance Co. Ltd., Federal Bank Ltd., Shriram Finance Co. Ltd., PI Industries Ltd., Bharat Forge Ltd., Karur Vysya Bank Ltd., Schaeffler India Ltd., Astral Ltd. and City Union Bank Ltd., which accounts for about 26% 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 in mid cap companies and willing to supplement their core equity portfolio with its underlying growth potential.