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.
|Fund Name||3-Year CAGR||5-Year CAGR|
|Quant Mid Cap Fund||40.70%||23.27%|
|PGIM India Midcap Opportunities Fund||35.79%||21.68%|
|SBI Magnum Midcap Fund||36.17%||19.63%|
|Nippon India Growth Fund||34.75%||19.46%|
|Kotak Emerging Equity Scheme||33.89%||19.09%|
|Motilal Oswal Midcap Fund||38.43%||18.73%|
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.
- Your financial goals
- Risk tolerance level
- Investment time horizon
- Your age
- The way you budget your finances
- 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.
Which Funds are Better, Mid-cap or Small-Cap?
The best fund between the two will depend on an investor’s individual risk tolerance and investment goals. Small-cap funds carry high risk but offer significant growth potential. On the other hand, mid-cap funds carry comparatively lower risk but also have lower growth potential.
What Are Mid-cap Stocks?
Mid-cap stocks refer to the equity securities of mid-sized companies (with a market cap between ₹ 5000 Cr to 20000 Cr)
Should You Invest In Mid-cap Funds?
Mid-cap funds are suitable for investors seeking a balance between growth potential and risk. Investors invest in mid-cap funds for various other reasons such as diversification, personal beliefs etc.
How much to invest in Mid-cap funds?
There is no formula to calculate the right proportion to invest in mid-cap funds. It is a decision that should be tailored to your specific circumstances.
What are some Examples Of Mid-cap funds?
Here are some examples of Mid-cap funds-
1. SBI Magnum Midcap Funds
2. Quant Midcap Fund
3. Nippon India Growth Fund
4. Kotak Emerging Equity Fund
5. Motilal Oswal Midcap Fund
Can I Do SIP in mid-cap Funds?
Yes, you can invest in mid-cap funds through SIPs as well as lump sum amounts.
Do Mid-cap Funds Pay Dividends?
Yes, if the fund has any or some dividend-paying companies, you can choose between two plans- 1. Dividend payout, 2. Dividend reinvestment.
How Are Mid-Cap Funds Taxed?
Mid-cap funds invest at least 65% of their assets in equities and equity-related securities. Hence, mid-cap funds are taxed similarly to equity funds.
How To Invest in Mid-Cap Mutual Funds?