CRISIL Research analysed the performance of the CNX Nifty Index (large-cap index) and CNX Midcap Index (mid-cap
index) over a 10-year period until March 2013. The CNX Midcap Index gave 23% annualised returns over this period, while the CNX Nifty Index returned 19%.

CRISIL Research also looked at the past 10 calendar years to test the consistency of this hypothesis. Over this period, the CNX Midcap Index has outperformed the CNX Nifty Index in six out of 10 years. On the volatility front, the mid-cap index has been less volatile in 50% of the observed instances, especially from 2007 onwards. In other periods too, the difference in volatility between the two indices was marginal.

Mutual funds, too, show a similar trend

The study was then extended to mutual funds, viz., large cap and small and mid-cap equity funds, to see if this trend was
consistent. Small and mid-cap equity funds moved in line with the CNX Midcap Index, while large-cap equity funds
shadowed the CNX Nifty Index. This was also seen in the correlation for both these categories with their respective
benchmark indices, which was high at 94%. According to the analysis, small and mid-cap equity funds have been less
volatile as compared to large-cap funds across all periods of analysis (three, five and seven years) as observed in Table 3.
These funds have also generated higher returns since the date from when data is available, i.e. October 2004.

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