In August 2025, while the inflows into equity mutual funds declined 22% to 334 billion (bn) from the previous month, mid cap funds witnessed the second-highest net inflow of over Rs 53 bn.
This is even though the PE ratio of the Nifty Midcap 150 index is slightly above its 5-year average.
The high returns of midcaps in the last couple of years has drawn investor attention. In the last 3 and 5 years, the Nifty Midcap 150 – TRI has delivered 22.9% and 27.6% CAGR, respectively.
However, it’s equally important to recognise that the risk involved in mid cap funds is high. Mid cap funds are mandated to invest at least 65% of their total assets in companies ranking from 101st to 250th in terms of full market capitalisation, classified as midcaps, as per the regulatory guidelines.
While midcaps have the potential to become tomorrow’s largecaps, it’s crucial to recognise their inherent risk and consider making staggered lump sum investments, or even better, taking the Systematic Investment Plan (SIP) route.
In this editorial, we will deep-dive into one of the popular mid cap funds – the Kotak Mid Cap Fund (earlier known as Kotak Emerging Equity Fund).
Fund Overview
Launched in March 2007, Kotak Mid Cap Fund aims to generate long-term capital appreciation from a portfolio of equity and equity-related securities, by investing predominantly in midcap companies.
These companies are either in their nascent or developing stage and are under-researched. Although they may be relatively volatile in the short term, midcaps have the potential to deliver higher returns over the long term.
The fund has developed a track record of picking well-performing, mid-sized companies that have the potential for structural growth.
The scheme also invests in debt and money market instruments.
Since its launch, the fund has demonstrated a credible track record, having outperformed the benchmark and the category average.
Today, with an Assets Under Management (AUM) of nearly 569 bn, it’s the second-largest midcap fund in the category.
The fund has been managed by Atul Bhole since January 2024. He is currently the Executive Vice President – Fund Management (Equity) at Kotak Mahindra Asset Management Company (AMC).
Before that, Pankaj Tibrewal and Harsha Upadhyaya managed the fund for a long time.
Kotak Mid Cap Fund – Snapshot
| Inception Date | 30-Mar-07 | SI Return (CAGR) | 21.15% |
| Corpus (bn) | Rs 569 | Min. Lumpsum / SIP | Rs 100 / Rs 100 |
| Expense Ratio (Dir/Reg) | 0.37% / 1.40% | Exit Load | 1% |
Source: ACE MF
Investment Strategy
Kotak Mid Cap Fund is known for its bold stock and sector selections. It seeks to invest in companies that are either at their nascent or developing stage and are under-researched but have the potential to deliver high growth in the long term.
It follows a bottom-up approach to identify high-growth potential companies. It considers the following, among other aspects…
- Financial parameters of the company
- Reputation and competence of the management
- Companies that are less prone to recessions or cycles
- Companies that pursue a strategy to build strong brands
- Market liquidity of the stock
- Debt-to-equity (It prefers companies with low debt)
- High return ratios
- Cash flows
It identifies investments where the stock is trading at a material discount to its intrinsic value. The fund invests across sectors and follows a buy-and-hold strategy to derive the full potential of stock price appreciation.
Portfolio
As of August 2025, Kotak Mid Cap Fund holds 64 stocks within its typical 60–80 range. The allocation leaned 68% toward midcaps, with smallcaps at 15% and largecaps at 14%, with cash levels at just about 2%.
The portfolio’s top 10 names together made up 30.7% of assets, featuring companies like Fortis Healthcare (3.9%), GE Venova T&D India (3.8%), and Dixon Technologies (3.2%).
Among the various sectors, the top 3 sectors of the fund are finance (12.2%), healthcare (11.7%), and IT (10.9%)
The buy-and-hold approach followed by the fund is reflected in its low portfolio turnover, which has been in the range of 30-50% in the last one year.
The portfolio is well-distributed across cyclical and defensive sectors. This helps to cushion the impact of market corrections and sustain performance through varying market phases.
This diversified approach of Kotak Emerging Equity has helped balance growth potential with stability. This was in-line with the fund’s investment strategy.
Historical Returns
Kotak Mid Cap Fund has often been among the top performers in its category. It has outperformed its category peers and benchmark, i.e. the Nifty Midcap 150 – TRI, over longer periods.
As of 16 September 2025, the compounding annualised rolling returns over the last 5 years are 23.8%, which is higher than the category average and the Nifty Midcap 150 – TRI.
Kotak Mid Cap Fund – Performance
| Scheme Name | Absolute (%) | CAGR (%) | Risk Ratios | |||
| 1 Year | 3 Years | 5 Years | SD Annualised | Sharpe | Sortino | |
| Kotak Midcap Fund(G) | 24.12 | 26.63 | 23.81 | 14.64 | 0.33 | 0.63 |
| Category Average* | 25.37 | 25.64 | 23.00 | 15.06 | 0.35 | 0.69 |
| Nifty Midcap 150 – TRI | 25.07 | 27.38 | 22.97 | 15.47 | 0.31 | 0.62 |
Data as of 16 September 2025
Rolling period returns are calculated using the Direct Plan-Growth option. Returns over 1 year are compounded annualised.
Standard Deviation indicates total risk, while the Sharpe Ratio and Sortino Ratio measure the Risk-Adjusted Return. They are calculated over 3 years, assuming a risk-free rate of 6% p.a.
All mid cap mutual fund schemes are considered to compute the category average returns. Please note that this table represents past performance. Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory. Speak to your investment advisor for further assistance before investing. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully.
Source: ACE MF
Risk Profile
In terms of volatility, with low churning and a buy-and-hold strategy mostly followed, Kotak Mid Cap Fund has been able to keep risk well contained (reflected by the standard deviation of 14.64) compared to the category average and the Nifty Midcap 150 – TRI.
Thus, on a risk-adjusted basis, the fund has fared well as reflected by the sharpe and sortino ratios of 0.33 and 0.63, respectively, better than its benchmark index.
It can be said that Kotak Mid Cap Fund has rewarded investors for the risk taken. It stands as a decent risk-reward contender.
Conclusion
Kotak Mid Cap Fund’s significant asset growth in recent years, driven by its attractive past performance, underscores its reliability. It comes from a fund house following robust investment processes and systems, plus managed by an experienced fund manager.
The fund is well-positioned to benefit from opportunities in the midcap space with a well-distributed portfolio across cyclical and defensive stocks.
That said, a mid-cap fund may be looked at only if you have the stomach for very high risk, have a longer horizon of 5-7 years or more, and as part of the satellite portion of the mutual fund portfolio.
Remember, since mid-cap funds are equity funds, if you sell the units within 12 months, the gains will be subject to short-term capital gains (STCG) tax at 20%.
On the other hand, if you sell your mid cap mutual fund units after completing one year, the gains will be subject to long-term capital gains (LTCG) tax of 12.5% for gains in excess of Rs 1.25 lakh in a financial year.
Happy investing.
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