HSBC Mid-cap: Better late than never

FUND STRATEGY

As the rush to equity markets continues unabated, fund IPOs are increasing in number by the day. HSBC Mutual Fund, one of the best performing fund houses in the country, has recently come up an idea which is, well, nothing new. The fund house is out with its 'new' fund - Midcap Equity Fund.

The fund will invest in mid-caps - which it defines as stocks whose market cap are no more than 0.1 per cent of the total market cap of BSE 200 index. The mid-cap story is still alluring - mid-caps promise high growth and exposure to emerging sectors which often constitute small companies with the potential to grow faster.

But of course, they come with their fair share of risk. In number terms, mid-caps ruled the show with the CNX Midcap 200 posting 100.81per cent returns over the past couple of years against 45.99 per cent by the Nifty. 
 

FUND SNAPSHOT
Issue opens:	April 12, 2005
Issue closes:	May 3, 2005
Options:	Growth and dividend
Min. investment:	Rs 5,000
Entry load:	2.25 per cent
Exit load:	Nil
Min. redemption:	Rs 1,000

The fund has a cap on its size. So it does not intend to let its corpus breach Rs 700 crore. The reason is the availability of mid-caps, leave alone good quality ones, in the market. Since the CNX Midcap 200, which is fairly good representation of the mid-cap opportunity in the market, has a market-cap Rs 75,000 crore, a fund with a corpus of Rs 2,000 crore will end up owning 3 per cent in each company.

And if the fund wanted to bet about 5 per cent of its assets which would be Rs 100 crore in a single stock it would end up owning about 10 per cent the equity in a company with a market-cap of Rs 1,000 crore. According to the fund, a reasonable fund size would enable efficient management and help manage risk better.

HSBC MF has a good track record in terms of performance. Its's flagship Equity fund has been among the best performing in its category for the past several years, giving returns of 71 per cent since inception in December, 2002.

With the Indian corporate story still robust and the economy too looking healthy, investing in this fund (with a little risk of course) could do well for your portfolio and satiate your risk appetite. 
 

HSBC Midcap Fund
(Returns in % as on Apr 12)	6 months	1 year
CNX 200	42.17	68.43
Sundaram Select	35.51	58.14
Franklin Prima	35.46	52.41
Birla Midcap	33.48	51.09
Cholamandalam Midcap	32.72	-
UTI Thematic	15.81	-
Nifty	12.85	7.83

Though mid-cap funds have outperformed large-cap ones and the Nifty, they have failed to outperform the CNX 200 mid-cap index which has been the highest gainer. The reason for this, however, is another story.