My Midcap Portfolio 2023: PGIM India & Kotak Emerging Equity Fund

As promised, I’m sharing the latest addition to my midcap portfolio: The Kotak Emerging Equity fund. I’m going to share my midcap investing strategy and why I have 2 mutual funds in this category.

Why I added a second fund

While you might have heard of the advice of keeping 1 mutual fund per category, and it was something I followed for a few years until:

  1. My portfolio grew in size
  2. Some Franklin mutual fund schemes got shut down (even though I wasn’t invested in them)
  3. Axis mutual fund front running case (and I was invested in it)
  4. I learned more about mutual fund overlap

Basically, I learned more and lost more trust in mutual fund houses to keep all my money in one category with a single fund.

I now have 2 mid-cap funds and 2 small-cap funds instead of 1 per category (as I had before).

Having a single midcap fund in your portfolio carries the risk of being overly dependent on the performance of a single fund manager and their investment strategy.

Reasons to switch to 2 funds per category

By adding a new midcap fund for diversification, you can potentially enhance the risk-return profile of your portfolio in several ways:

Reduced concentration risk:

Investing in a single midcap fund exposes you to the performance and volatility of a limited number of stocks and sectors. By diversifying across two midcap funds, you can spread your investments across a broader range of stocks and sectors, reducing the impact of poor performance from a single fund.

Access to different investment styles:

Each midcap fund may have a unique investment approach and style. By investing in multiple funds, you can gain exposure to different fund managers who may have different strategies, perspectives, and expertise. This allows you to benefit from the strengths of different investment styles and potentially achieve more balanced risk-adjusted returns.

Enhanced portfolio flexibility:

Owning two midcap funds gives you the flexibility to adjust your portfolio allocation between the two funds based on market conditions, fund performance, and investment objectives.

Risk mitigation:

Diversifying across multiple midcap funds helps to mitigate the risk of poor performance from a single fund. If one fund underperforms, the potential impact on your overall portfolio is reduced because the other fund(s) may still deliver positive returns.

This diversification can help to smooth out the overall volatility of your portfolio.

Just remember: you cannot trust these fund houses and what if one of them defaults?

Potential for improved performance:

Different midcap funds may have varying portfolio holdings and sector allocations. By combining two funds, you can potentially benefit from more comprehensive coverage of midcap stocks and sectors, increasing the likelihood of capturing attractive investment opportunities and achieving better overall performance.

On the flip side, you might say I might get results similar to the midcap index. First, I feel the midcap and small-cap universe is HUGE. Second, even if I get results similar to the midcap index, I’m okay with it!

Fund 1: PGIM India Midcap Opportunities Fund

This is my first pick in the midcap category.

PGIM India midcap fund
Here are some details about the fund:
Fund NamePGIM India Midcap Opportunities Fund
Fund TypeMid-cap equity fund
Fund ObjectiveTo achieve long-term capital appreciation by predominantly investing in equity and equity-related instruments of mid-cap companies
BenchmarkNIFTY Midcap 150 Total Return Index
Assets Under Management (AUM)₹8,072 crores (as of March 31, 2023)
Expense Ratio0.43%

As of March 31, 2023, the top 10 holdings of the PGIM India Midcap Opportunities Fund are:

  • Jubilant FoodWorks Ltd. (3.29%)
  • Navin Fluorine International Ltd. (3.09%)
  • The Phoenix Mills Ltd. (3.04%)
  • Indraprastha Gas Ltd. (3.00%)
  • TI Financial Holdings Ltd. (2.95%)
  • Timken India Ltd. (2.94%)
  • Persistent Systems Ltd. (2.92%)
  • Abbott India Ltd. (2.77%)
  • Cholamandalam Investment and Finance Company Ltd. (2.73%)
  • Cummins India Ltd. (2.68%)

These stocks represent a diversified portfolio of mid-cap companies across sectors. The fund manager uses a top-down and bottom-up approach to select stocks and considers factors such as growth potential, valuation, and management quality.

Fund 2: Kotak Emerging Equity Fund

Kotak Emerging Equity Fund is the second and new addition to my midcap portfolio.

Some more details about the fund:

NameKotak Emerging Equity Fund (Direct Plan)
Investment objectiveTo generate long-term capital appreciation by investing predominantly in mid-cap companies.
Asset size₹25,972 crores
Expense ratio0.41%
BenchmarkNifty Midcap 100 Index

Here are the top 10 holdings of the Kotak Emerging Equity Fund (Direct Plan) as of March 31, 2023:

Supreme Industries Ltd.4.30%Capital Goods
Schaeffler India Ltd.3.71%Auto Components
Cummins India Ltd.3.53%Auto
Persistent Systems Ltd.3.47%IT
Timken India Ltd.3.24%Auto Components
L&T Technology Services Ltd.3.12%IT
Shriram Transport Finance Co. Ltd.3.05%NBFC
Adani Transmission Ltd.2.98%Utilities
Lupin Ltd.2.96%Pharma

Fund Overlap

Now, while adding another mutual fund that invests in the same category, it’s important to consider the fund overlap.

Mutual fund overlap refers to the extent to which two or more mutual funds hold similar securities in their portfolios.

When investing in multiple funds within the same category, it is essential to calculate the overlap to understand the level of redundancy or concentration in your investment holdings.

You don’t want to be investing your money in 2 funds that eventually invest in the same stocks.

Now, the mutual fund overlap between PGIM India and Kotak Emerging Equity Fund is somewhere in the range of 20 to 25%.

This changes over time but usually stays in the same range.

And I’m completely fine with this much overlap.

So that’s my updated midcap mutual fund portfolio. I’ve also added a new fund (and replaced a previous one) in my small-cap portfolio. I’ll be writing a different post about it. Stay tuned!

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