Midcap Mutual Fund Ratio Analysis Report June 2024

 

The purpose of this report is to provide overall industry insight on Midcap Mutual Fund through the lenses of a few ratio analytics. We as investor always goes crazy while selecting mutual funds based on returns. Return-based selection of a scheme is as good as investing blindly. One needs to have a forward-driven analytical outlook while searching for investing. These insights are for investors who invest blindly and redeem fast creating short-term panic for long-term investors.

Yes, this is one of the strangest ironies of investing where reckless driving of one’s car snatches the life of another one.  If a group of investors invest based on past returns and when there is a slight change in the bull market dynamics the investor will opt for moving out. The movement will create further panic and short-term jitters impacting other long-term investors. Hence it is very important that while making any investment one should keep his eyes open. Please note this is not a recommendation and analysis only which leads to knowledge awareness and not investing. Since just like job change one has to make mental preparations, every investment needs preparation under the guidance of an investment advisor. Hence before investing please speak with your Financial Advisor.

This report analyses the turnover ratio and liquidity ratio for various midcap funds as of June 2024. The turnover ratio indicates the frequency of trading within the fund, while the liquidity ratio represents how quickly the fund can liquidate its assets. The liquidity ratio average (days) provides a longer-term perspective on the fund's liquidity.

Turnover Ratio Highlights:

• The Quant Mid Cap Fund(G) has the highest turnover ratio at 307.00%, indicating very active management with frequent trading.
• The Motilal Oswal Midcap Fund-Reg(G) and WOC Mid Cap Fund-Reg(G) also exhibit high turnover ratios at 149.00% and 249.00%, respectively.
• Funds like Aditya Birla SL Midcap Fund(G) and HDFC Mid-Cap Opportunities Fund(G) have lower turnover ratios (21.00% and 20.12%, respectively), suggesting a more stable, less active management approach.

Liquidity Ratio Observations:

• The WOC Mid Cap Fund-Reg(G) has the lowest liquidity ratio at 0.83 days, indicating the highest liquidity among the funds, allowing for quicker liquidation of assets.
• The Invesco India Midcap Fund(G), Motilal Oswal Midcap Fund-Reg(G), and Quant Mid Cap Fund(G) have the highest liquidity ratios (2.08, 4.17, and 4.17 days, respectively), suggesting lower liquidity and longer times to liquidate assets.

Combined Analysis:

High Turnover & Low Liquidity: Funds like Quant Mid Cap Fund(G) and Motilal Oswal Midcap Fund-Reg(G) have high turnover ratios and high liquidity ratios, indicating frequent trading but potentially higher costs and risks due to lower liquidity.

Low Turnover & High Liquidity: Funds such as Aditya Birla SL Midcap Fund(G) and HDFC Mid-Cap Opportunities Fund(G) show low turnover and moderate liquidity, indicating a more conservative management approach with fewer transactions and moderate liquidity.

Balanced Funds: Axis Midcap Fund-Reg(G) and Bandhan Midcap Fund-Reg(G) exhibit moderate turnover and liquidity ratios, suggesting a balanced approach between active management and liquidity.

Liquidity Ratio Average:

The liquidity ratio average provides insight into the typical liquidity over a longer period. Funds with higher averages, such as Motilal Oswal Midcap Fund-Reg(G) and Quant Mid Cap Fund(G), suggest consistently lower liquidity.

Funds with lower averages, like Nippon India Growth Fund(G) and HSBC Midcap Fund-Reg(G), indicate consistently higher liquidity, beneficial for quick asset liquidation.

How to interpret the data analysis from the Investor Perspective

High Turnover Funds: This may incur higher transaction costs and potential tax implications due to frequent trading. Suitable for investors seeking active management and potential higher returns, albeit with higher risk.

Low Turnover Funds: Tend to have lower transaction costs and may be more stable. Suitable for conservative investors seeking steady returns with lower risk.

Liquidity Considerations: Funds with higher liquidity ratios might face challenges in quickly liquidating assets without impacting market prices, affecting performance during market downturns. Investors should balance between liquidity and turnover based on their risk tolerance and investment horizon.

Conclusion

The analysis of turnover and liquidity ratios provides valuable insights into the management style and risk profile of various midcap funds. Investors should consider these factors along with their individual risk appetite, investment goals, and market conditions when selecting funds for their portfolios. Balancing between high turnover for potential higher returns and liquidity for safety and quick access to assets is crucial for making informed investment decisions. Please note this is not a recommendation and analysis only which leads to knowledge awareness and not investing.