What is Mid-Cap Fund? Complete Guide + FAQs Answered!

Many investors seek the elusive ‘just right’ balance in their investment portfolios. Not too big, not too small, mid-cap mutual funds are perfectly positioned for steady growth.

These unpretentious funds hold the potential to deliver significant returns, striking a balance between stability and growth. Keep reading to learn why mid-cap funds might be the answer you’ve been searching for!

Mid-cap Funds: Meaning & Explanation

We can categorise companies/businesses listed on stock exchanges based on their market capital.

• Small-Cap Companies (Market Cap. Less than 5000 Cr)
• Mid-Cap Companies (Market Cap. Between 5000 Cr to 20000 Cr)
• Large-Cap Companies (Market Cap. More than 20000 Cr)

Mutual funds primarily focused on mid-cap companies are called mid-cap mutual funds. They pool money from investors & invest in mid-sized companies to leverage their growth potential.

Mid-cap funds invest at least 65% of the assets in equities & equity-related instruments of mid-sized companies. Hence, these funds are subject to tax as that of equity funds.

Which Is the Best Mid-cap Fund

The best mid-cap fund for all is an illusion. However, here below is a list of top-performing mid-cap funds based on their 5-year performances.

Note! Only past performance should not be the deciding factor. Investors must consider other crucial factors to choose best fit mutual fund scheme.

Mid-cap Vs Small-cap Vs Large-cap Funds

I hope you do understand the difference between these three funds if you know what are mid-cap funds. By the way, here is a short explanation.

‘Focus‘ is the main differentiating factor between these funds. Small-cap funds focus on small-cap companies, mid-cap on mid-cap companies & large-cap focus on large-cap companies.

However, risks and returns potential differ from each other. Plus, each of them has its advantages & disadvantages.

Related Read: Understand Small-Cap Funds

Risks & Returns Of Mid-cap Funds

Risks & returns are two primary factors in making investment decisions. Investors seeking stability may choose large-cap funds while investors seeking aggressive returns prefer small-cap funds.

Mid-cap funds fall between large-cap and small-cap funds. Their level of risks and growth potential lies between the two. In short, they offer more stability than small-cap funds & have the potential for higher returns than large-cap funds.

Accordingly, if you feel okay with taking some degree of risk and are looking to harness the power of compounding over time, considering a mid-cap fund investment can be rewarding in the long term.

Things To Consider While Selecting A Mid-Cap Fund

Before selecting any mutual fund, investors should consider some important factors discussed below.

1. Understand Yourself

Start with understanding your financial needs by considering the following points.

1. Your financial goals
2. Risk tolerance level
3. Investment time horizon
4. Your age
5. The way you budget your finances
6. Your investing & diversification strategy

2. History of the Mutual Fund

Looking at the history of the fund i.e. when was it launched? 1-year, 3-year, and 5-year past returns, how has it performed against the benchmark? helps you make a wise investment decision.

3. Management of The Mutual Fund

Here are things to investigate- Which AMC (Asset Management Company) is managing it & how reputed is it? What is the track record & experience of managers managing the fund? How are they optimizing for risks & returns?

4. Expense Ratio & Other Charges

The expense ratio is charged by mutual funds for managing and operating the fund. But a higher expense ratio may significantly eat into your returns if you consider the power of compounding.

Alternative Ways To Invest In Mid-Cap Companies

Let’s explore some alternative ways to invest in mid-cap companies other than mid-cap mutual funds.

A. Mid-Cap Index Funds

Many asset management companies offer mid-cap index funds. These funds provide a cost-efficient option as they have low expense ratios and aim to track the performance of mid-cap company indexes. For more information on index funds, you can refer to this detailed guide.

B. Mid-Cap ETFs

Investing in mid-cap ETFs (Exchange Traded Funds) is another effective way to tap into the potential of mid-cap companies. These investment funds hold a diversified portfolio of mid-cap assets.

C. Direct Investments

If you have a Demat account, you can consider directly investing in individual stocks of mid-cap companies. However, this approach requires a good understanding of the market and expertise to potentially achieve significant returns.

FAQs