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Mid Cap Mutual Funds: Meaning, Growth, Stocks & Companies

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Companies listed on stock exchanges of India have been classified according to their ‘market capitalization’. Based on market caps, SEBI has categorized listed companies in three tiers- Large-Cap, Mid-Cap, and Small-Cap. In this article, you will learn more about Mid-Cap Mutual funds which primarily invest in Mid-Cap companies. 

What are Mid-Cap Companies?

According to the Securities and Exchange Board of India (SEBI), companies which rank from 101 to 250 in terms of market capitalization are considered as Mid- Cap companies. 

What are Mid-Cap Funds?

The schemes of fund houses that invest at least 65% of their total assets in equity or equity related instruments of these companies are called Mid-Cap funds. 

Instead of directly investing in Mid-Cap stocks, an investor should rather invest in Mid-Cap funds to minimize risk through diversification and capitalize on the benefit of an expert’s management. 

Although these funds invest majority of their assets in Mid-Cap companies, internal diversification within the category (in different sectors) lets the fund house offset risk from market fluctuations.

Things to Consider Before Investing in Mid-Cap Funds

  • Investor Risk Appetite

Compared to large-cap funds, mid-cap funds have a relatively higher risk, since the performance of large-cap companies is less sensitive to market fluctuations. 

A potential investor should carefully analyse his/her risk appetite and then choose a fund house accordingly.  Mid-cap funds are less risky than small-cap ones but relatively riskier than large-cap funds. 

  • Past Performance of the Fund

To obtain maximum returns from investment in Mid-Cap funds, it becomes imperative to evaluate the performance of multiple fund houses on certain parameters like how they perform during different market conditions, their experience in the industry, etc, while choosing a fund house for your investment.

You can compare the 1-year, 3-year and 5-year returns of the fund with its benchmark and category returns as well. If the fund has generated attractive returns and also outperformed its benchmark and category returns, you can opt for the fund. 

  • Investment Time Horizon

If you are looking for short term gains, then investment in mid-cap funds is not the right choice. Since these funds invest in equity and equity related instruments, the returns are quite volatile in the short run. 

An individual should have a time horizon of  5+ years to get great returns. Also, in the long run, an investor also benefits from the power of compounding, where you earn returns on the returns earned on the principal investment. 

  • Expense Ratio of the Fund

Expense Ratio refers to an annual fee that an Asset Management Company charges to manage your assets. It is a specific percentage of your investment. You should choose a fund which has lower expense ratio as high expense ratio decreases your Net Asset Value (NAV) thereby decreasing your effective returns. 

Benefits of Investing in Mid-Cap Funds

  • Good Returns: Mid-cap funds have a history of providing decent returns over the years. Although the returns are highly volatile in the short run as Mid-Cap companies are sensitive to market fluctuations, in the long run, one has an opportunity to get high returns.
  • High Growth Potential: Mid-Cap companies have high growth potential as they are the middle players in terms of market capitalization. They still need to expand their business to become large-cap companies and this presents their shareholders a fair chance at making high capital gains. 

Some mid-cap companies cater to emerging markets of the economy, which gives them an amazing platform for growth. Investment in these companies could yield high returns. 

  • High Liquidity: Amount accumulated in mid-cap funds is highly liquid as an investor can sell the mutual fund units when required. This can benefit you during emergencies when you need liquid cash.   

Top 5 Mid-Cap Funds in India

Here is a list of top performing Mid-Cap Funds in India. 

Fund 1 Year Return 3 Year Return 5 Year Return
Kotak Emerging Equity Scheme -8.19% 13.00% 21.13%
L&T Midcap Fund -11.51% 15.65% 20.92%
Invesco India Midcap Fund -3.23% 13.14% 18.29%
DSP Midcap Fund -7.49% 14.27% 19.68%
HDFC Midcap Opportunities Fund -9.60% 13.45% 18.30%

All data as on July 01, 2019

Also Read: Best Midcap Funds to Invest in 2019

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