In 2024, Motilal Oswal Midcap Fund was the best performing equity mutual fund in India. Not the best midcap fund. The best fund among all equity categories, with a 1-year return in excess of 66%.
Investors noticed and the fund grew from about Rs 10.5 billion (bn) in assets under management to roughly Rs 380 bn in four years, more than a thirty-fold increase. This made it one of the largest midcap schemes. Today, its assets stand near Rs 365 bn.
But over the past year it has delivered a negative return. On rolling one-year returns measured to August 2026, the fund has returned -3.29% against 7.19% for the Nifty Midcap 150 TRI. That places the fund last among midcap schemes over that period.
The same fund, over 5-year rolling periods, returned 27.39% against the benchmark’s 22.3%. The best returns over five years, the worst over one year.
| Rolling returns | The fund | Nifty Midcap 150 TRI | Gap |
|---|---|---|---|
| 1 year | -3.29% | 7.19% | -10.48 pp |
| 5 years | 27.39% | 22.30% | +5.09 pp |
Data Source: Ace MF, data as of August 2026 end
So, what’s going on?
There are three reasons explaining the fund’s performance…
1) A Concentrated Portfolio That Was Wrongly Positioned
Motilal Oswal Midcap Fund runs a deliberately concentrated portfolio. Under the AMC’s stated “Buy Right, Sit Tight” philosophy, the fund takes high-conviction positions in a limited number of businesses and holds them.
Concentration works powerfully in both directions. When the chosen names run, as they did through 2024, the fund does not merely beat its benchmark, it laps it. When they do not, there is nothing else in the portfolio to compensate.
From the middle of 2025, the sector allocation was poorly positioned for the market that followed. In a diversified fund that would have cost a few percentage points. In a concentrated one it cost considerably more, and the fund’s net asset value fell about 14% over three months.
2) The Fund Manager Changed
This is the factor that separates this case from most stories about temporary underperformance.
Niket Shah managed Motilal Oswal Midcap Fund from July 2020. Almost the entire track record that made this fund famous, including the 66% year, was built under him. He was elevated to Chief Investment Officer of the AMC in April 2024, and over his tenure the fund house’s total assets grew from about Rs 190 bn to roughly Rs 1.7 tn.
In January 2026 he moved to a new role as Managing Director of Principal Investments within the Motilal Oswal Group. He has not left the group, but he no longer runs the fund. Ankit Agarwal and Varun Sharma took over, with a wider team also named on the scheme.
The historical performance record of this fund reflects investment decisions made by someone who is no longer making them. That does not make the fund a poor choice. But it does mean the past numbers are evidence about a previous manager, and the new team has to be assessed on its own.
3) Redemptions and Repositioning at the Same Time
The two problems above then fed a third.
| What changed | When | Scale |
|---|---|---|
| Niket Shah moved to a group role | January 2026 | Had managed the fund since July 2020 |
| Largest single-month outflow | January 2026 | Rs 24.5 bn |
| Outflow the following month | February 2026 | Rs 7.43 bn, moderating |
| Total AUM decline | Nov 2025 to Feb 2026 | Rs 43.1 bn |
| NAV decline | Three months to early 2026 | About 14% |
January 2026 saw the largest single-month outflow at about Rs 24.5 bn, coinciding directly with the announcement of the manager’s move.
The fund’s total assets fell roughly Rs 43.1 bn between November 2025 and February 2026, a combination of redemptions and falling markets.
This created an awkward situation for any new management team. They are repositioning a portfolio they did not build, in a difficult market, while meeting redemptions.
Short-Term Underperformance is Normal, but This Is a Different Case
The standard line about struggling funds is that ‘past performance is not an indicator of future returns’. Today’s winners can be tomorrow’s laggards, and the reverse is equally true.
Every strategy has periods when the market does not reward it, and investors who abandon a sound approach at the bottom of such a period usually pay for it twice.
The greater danger for most investors is not a bad year. It’s switching funds after a bad year and then missing the recovery.
That said, the standard line assumes one thing that does not hold here: that the fund you are being patient with is the same fund you originally bought.
There are four things worth watching before concluding that a fund has genuinely deteriorated:
| The warning sign | Where this fund stands |
|---|---|
| Sustained deterioration in long-term rolling returns | The fund’s five-year rolling returns are still the best in the category |
| Major change in portfolio quality | New fund managers have been repositioning |
| Significant deviation from stated philosophy | This is not evident as they follow ‘Buy Right, Sit Tight’ approach |
| A change in the person making decisions | This has clearly happened |
All of this does not make this an exit signal. Plenty of funds change managers and continue to do well, particularly where the process is institutional rather than dependent on one person, which is what Motilal Oswal’s stated philosophy implies.
Conclusion
Motilal Oswal Midcap Fund still holds the best five-year rolling record in its category, it retains a large and committed investor base, and its long-term philosophy has not formally changed.
It’s a fund with a new decision-maker, a concentrated portfolio being repositioned, and a year of returns that sit at the bottom of its peer group.
For an existing investor, that argues for monitoring and not panic selling or complacency. The specific things to track are whether the new team’s portfolio starts to resemble the old one in quality, whether outflows have genuinely stabilised, and whether rolling one-year returns close the gap to the benchmark over the next three or four quarters.
For someone considering a fresh investment, the calculation is different. You would be considering a fund with a reputation built by a manager who no longer runs it, at a moment when the new team has not yet produced a full year of its own record.
Evaluate the scheme’s investment mandate, the fund manager’s track record, costs, portfolio composition, and your asset allocation and risk tolerance before making any investment decisions.
Happy investing.
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