Motilal Oswal Midcap Fund Underperformance: How Much Is Too Much?

Motilal Oswal Midcap Fund Underperformance Raises Investor Questions

The Motilal Oswal Midcap Fund has become an interesting case study for mutual fund investors after a sharp change in its recent performance.

The fund was among India's strongest-performing equity mutual funds in 2024, delivering a return of more than 66% over one year. Its strong performance attracted substantial investor interest and helped its assets under management expand dramatically.

However, the picture has changed.

According to data reported through August 2026, the fund generated a -3.29% one-year rolling return, compared with 7.19% for the Nifty Midcap 150 TRI. That represents an underperformance of approximately 10.48 percentage points.

At the same time, its longer-term record remains much stronger. Its five-year rolling return stood at 27.39%, compared with 22.30% for the Nifty Midcap 150 TRI.

So the important question for investors is:

Is this simply a difficult phase for the fund, or does the recent underperformance signal a deeper change?

Motilal Oswal Midcap Fund: Strong Past, Difficult Present

One of the most important lessons from this situation is that investors should not evaluate a mutual fund using only its most recent return.

The fund's historical performance has been impressive. But recent performance tells a very different story.

Data reported through August 2026.

The contrast is significant.

The fund has simultaneously demonstrated excellent long-term performance and substantial recent underperformance.

That is why investors need to look beyond headline returns.

Why Is Motilal Oswal Midcap Fund Underperforming?

Several factors appear to have contributed to the recent weakness.

1. Concentrated Portfolio Strategy

Motilal Oswal Midcap Fund follows a high-conviction investment philosophy commonly associated with the AMC's "Buy Right, Sit Tight" approach.

Rather than spreading capital across a very large number of companies, a concentrated portfolio places greater emphasis on selected businesses.

This can produce powerful results when the chosen companies perform well.

But concentration has another side.

When several major holdings or sectors move in the wrong direction simultaneously, there may be fewer holdings available to offset the weakness.

The Financial Express analysis notes that the fund's positioning became less favourable from the middle of 2025, contributing to a significant decline in its NAV over a relatively short period.

What does this teach investors?

A concentrated portfolio can potentially produce:

• Higher upside when stock selection works
• Greater downside when the investment thesis fails
• Larger deviations from the benchmark
• Greater dependence on portfolio-management decisions

Therefore, investors should always understand how a mutual fund makes money—and how it can lose money.

2. Fund Manager Change Is an Important Factor

Perhaps the most important development is the change in fund management.

Niket Shah had managed the Motilal Oswal Midcap Fund since July 2020. The investment decisions during much of the period that created the fund's strong historical reputation were made under his leadership.

In January 2026, Shah moved to another role within the Motilal Oswal Group.

Ankit Agarwal and Varun Sharma subsequently took over the fund, alongside a broader management team.

This creates an important distinction for existing investors.

Historical performance belongs to the investment process and managers who generated it.

When the key decision-maker changes, investors should ask whether the new team is likely to maintain:

• The same investment philosophy
• Similar portfolio quality
• Comparable risk management
• Consistent stock-selection discipline
• Similar levels of conviction

A manager change does not automatically mean a mutual fund has become bad.

However, it does mean that investors should reassess the fund rather than assuming that its previous performance will automatically continue.

3. Redemptions Added More Pressure

The fund also experienced substantial investor outflows around the management transition.

The Financial Express analysis reported approximately ₹24.5 billion of outflows in January 2026, followed by another ₹7.43 billion in February. Its assets declined by approximately ₹43.1 billion between November 2025 and February 2026.

Large redemptions can create additional challenges for a fund manager.

At the same time that the new management team was evaluating and repositioning a portfolio, it also had to manage investor withdrawals.

This combination can make portfolio management more complicated.

Should Investors Sell Motilal Oswal Midcap Fund?

There is no universal answer.

A mutual fund should not necessarily be sold simply because it has underperformed for one year.

Short-term underperformance can happen because of:

• Market cycles
• Sector rotation
• Temporary weakness in holdings
• Valuation changes
• Investment-style cycles
• Portfolio restructuring
• Changes in market leadership

However, investors should also avoid the opposite mistake—assuming that every underperforming fund will eventually recover.

The right approach is to identify why the fund is underperforming.

Four Things Investors Should Monitor

Before making an investment decision, investors can monitor four major indicators.

1. Long-Term Rolling Returns

If long-term rolling performance continues to deteriorate relative to the benchmark and peers, it deserves attention.

The current five-year record remains strong, according to the reported August 2026 data.

2. Portfolio Quality

Investors should examine whether the portfolio continues to contain businesses that meet the fund's investment philosophy.

Look at:

• Top holdings
• Sector allocation
• Portfolio concentration
• Valuations
• Earnings growth
• Changes in major holdings

3. Investment Philosophy

A change in investment strategy can be more important than a temporary change in returns.

Investors should determine whether the fund continues to follow its stated philosophy.

4. Fund Management

A change in fund manager can materially affect how a portfolio is constructed and managed.

Investors should therefore evaluate the new team's track record and decision-making process separately from the historical record of the previous manager.

Is One Year of Underperformance Enough to Exit a Mutual Fund?

Usually, one year alone should not be treated as an automatic exit signal.

Equity mutual funds operate across market cycles. A fund can underperform during a particular phase and outperform during another.

However, investors should investigate when underperformance becomes:

• Persistent
• Significant
• Unexplained
• Accompanied by deteriorating portfolio quality
• Associated with a major change in investment philosophy
• Associated with repeated management changes

The objective should not be to find the fund with the highest return last year.

Instead, investors should seek consistency between the fund's strategy, risk level, portfolio and personal investment objectives.

What Nepali Investors Can Learn From This Case

Although Motilal Oswal Midcap Fund is an Indian mutual fund, the underlying lessons are highly relevant to investors learning about the Nepalese stock market.

Investors in NEPSE frequently focus on one question:

"Which stock will go up?"

A better question is:

"How do I analyze the risk and investment thesis behind the opportunity?"

This is where proper share market training in Nepal can make a difference.

Investors should learn to evaluate:

• Company fundamentals
• Earnings and EPS
• Valuation
• Sector performance
• Technical trends
• Support and resistance
• Volume
• Portfolio diversification
• Risk management
• Market cycles
• Trading psychology

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Mutual Fund Investing: Don't Chase Yesterday's Returns

The biggest lesson from the Motilal Oswal Midcap Fund story may be that past performance should be studied, not blindly chased.

A fund that delivered exceptional returns in one period can subsequently face a completely different market environment.

Similarly, a temporarily weak fund can potentially recover if its investment process, portfolio quality and management remain strong.

Before investing, consider:

1. Investment objective
2. Risk profile
3. Portfolio concentration
4. Fund manager
5. Benchmark performance
6. Long-term rolling returns
7. Expense ratio and costs
8. Portfolio quality
9. Your own investment horizon
10. Overall asset allocation

Motilal Oswal Midcap Fund: Key Takeaways

The current situation can be summarized in five points:

First, recent performance has been weak compared with the Nifty Midcap 150 TRI.

Second, the fund's five-year rolling performance remains strong.

Third, its concentrated investment approach can amplify both gains and losses.

Fourth, the departure of a long-standing fund manager makes the historical track record less straightforward to interpret.

Fifth, investors should monitor the new management team's portfolio decisions and future performance rather than making decisions purely on past returns.

The reported data therefore does not provide a simple "buy" or "sell" conclusion. It provides a reason for investors to conduct a deeper review.

What Should Investors Do Next?

For existing investors, the focus should be on monitoring rather than panic.

Watch the portfolio, management changes, benchmark-relative performance and whether recent outflows stabilize.

For new investors, the decision deserves even more scrutiny because the fund's historical reputation was built largely under a previous management regime.

Most importantly, investors should match any investment with their own:

• Financial goals
• Risk tolerance
• Investment horizon
• Asset allocation
• Liquidity requirements

Never invest solely because a mutual fund was a top performer in the past.

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Frequently Asked Questions

What happened to Motilal Oswal Midcap Fund?

The fund has recently experienced significant underperformance relative to its benchmark. Through August 2026, its reported one-year rolling return was -3.29%, compared with 7.19% for the Nifty Midcap 150 TRI.

Why is Motilal Oswal Midcap Fund underperforming?

The reported factors include concentrated portfolio positioning, challenging sector allocation, a change in fund management and substantial investor redemptions during the transition.

Is Motilal Oswal Midcap Fund still a good fund?

Its historical five-year rolling performance remains strong, but recent performance and the change in management mean investors should independently reassess the fund rather than relying only on its historical record.

Should I stop my SIP because of short-term underperformance?

Not necessarily. Short-term underperformance alone is not sufficient to determine whether an investment strategy has failed. Investors should consider their investment horizon, portfolio quality, benchmark performance, management and overall financial goals.

What is the Nifty Midcap 150?

The Nifty Midcap 150 is a benchmark representing the mid-cap segment of the Indian equity market. It is used to compare the performance of midcap-oriented investment strategies.

Why does a fund manager change matter?

A fund manager can influence stock selection, portfolio concentration, sector allocation and risk management. When a key manager changes, investors should evaluate whether the new team follows a comparable process.

What can Nepali investors learn from this mutual fund case?

Nepali investors can learn the importance of studying portfolio concentration, management quality, benchmark-relative performance, risk management and investment strategy rather than chasing historical returns.

Where can I learn share market investing in Nepal?

Sarbaguna Investment provides Share Market Training in Nepal, covering NEPSE, technical analysis, fundamental analysis, trading strategies and risk management.

For training information, contact Deep Thapa at 9849290806 by Call or WhatsApp.

Disclaimer

This article is for educational and informational purposes only. It is not personalized investment advice, a recommendation to buy or sell any mutual fund or security, or a guarantee of returns. Mutual fund and stock-market investments are subject to market risks. Investors should conduct their own research and consider their financial objectives, risk tolerance and investment horizon before making investment decisions.

About Sarbaguna Investment

Sarbaguna Investment is a Nepal-focused stock market education platform offering Share Market Training Nepal, NEPSE training, technical analysis courses, fundamental analysis education and practical stock-market learning.

Contact: Deep Thapa
Call / WhatsApp: 9849290806
Website: Sarbaguna.com

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