Mid and small cap stocks are stocks of companies having a high growth potential over longer time frame. To put it simply, they have the potential of being the large caps of the future. But having said that, mid cap stocks are high risk-high return investment proposition as they aim to generate wealth by generating a superior alpha (as compared to large caps) returns, but exposing their investors to greater risk. Moreover, during turbulent times they have a tendency to plunge more as compared to stocks in the large cap segment. Hence the funds focusing on the mid and small cap segment are ideal for investors willing to take high risk for relatively higher gains.

ICICI Prudential Midcap Fund (IPMF) is one such open-ended fund from ICICI Prudential Mutual Fund, which follows a blend style of investing. Being launched in October 2004, the fund has a performance history of over 6 years now.

The fund's investment objective is "to generate capital appreciation by actively investing in diversified midcap stocks. The scheme will primarily invest in companies that have a market capitalisation between ` 100 crores to ` 2000 crores. However, there is no assurance that the investment objective of the scheme will be realised."

While investing in stocks, IPMF intends to keep those companies on radar which have a high potential to emerge as better performers in the future. However, the companies would be assessed on the basis of the following:

• High growth capability
• High potential to expand capacity
• Current valuations
• Liquidity
• Entrepreneurial skills
• Global competitiveness
• Professional management

How IPMF has fared vis-à-vis its peers?

Despite having fairly robust criteria for selecting stocks, the performance of IPMF has been poor. Over a 3-Yr and 5-Yr time frame, IPMF has clocked a return of mere 11.0% and 2.4% respectively thereby underperforming its benchmark and its peers by far.

When assessed on the volatility front, IPMF has exposed its investor to higher risk (as revealed by its Standard Deviation of 10.30%). However, the same isn't well compensated in the form of the risk adjusted returns (as reveled by the Sharp Ratio of 0.07).

Over the past one year IPMF's exposure to midcap and small caps has been in the range of 69% - 93%, while its exposure to large caps has ranged from 4% - 25% but it seems that the fund has missed the rallies that occurred in midcaps.

As per the latest disclosed portfolio top 10 holdings and top 5 sectors form 36% and 41.19% of its equity holdings respectively.

So far the IPMF has refrained from churning its portfolio too often (as revealed by its lower portfolio turnover ratio of 0.68 times), and adopts a "buy and hold" strategy. But, it seems that the stock bets taken by the fund manager have gone wrong, as the fund appears insipid on the returns front as compared to its peers.

Fund Manager Profile

Despite having a fairly robust criteria for selecting stocks for its portfolio, ICICI Prudential Midcap Fund has generated dismal returns for its investors, which portrays a possibility of stock bets taken by the fund manager going wrong. While the fund has been a high risk taker, it hasn't compensated its investors for the risk taken since its risk-adjusted returns are rather pale. In fact the fund has been underperformer against its benchmark – CNX Midcap Index over 1-Yr, 3-Yr and 5-Yr time frame. It lags the competition by far.

ICICI Prudential Midcap Fund comes from a fund house which follows a systematic and process oriented approach to fund management. The Fund house has been in the industry for years now and has been one of the reputed fund houses.

Despite of all these merits IPMF has completely failed to generate returns even for the long term investors. This reaffirms our belief that there is no substitute to rigorous analysis while selecting a fund for investment. Merely buying a fund from a reputed fund house will not automatically generate returns for you. But, rigorous analysis and timely review definitely enhances your chances to benefit from mutual fund investing.