An introduction to mid-cap funds

Posted by Shaheen Shaikh on May 6th, 2019

In recent years, investors have been making a beeline for mid cap equity funds and mid cap stocks, more than large cap funds. What brought on this trend?

Year upon year, mid cap mutual funds have been showing consistent high growth. At times, they have even outperformed the large cap fund segment by a wide margin. But as a new investor, you may be tempted to research the fund over the last 3 or 5 years, and not find the kind of fiscal benefit that you are looking for.

Mid cap mutual funds are a viable option if you stay invested in them for a longer time frame, and also choose to reinvest again in the fund upon maturity (to get higher gains). Also, it is important to go with the right mid cap funds offered by leading fund houses only, and to facilitate the purchase process through their websites.

Understanding mid-cap funds

Mid-cap funds are mutual fund schemes that invest primarily in companies that are classified as ‘medium growth’ in the markets. These companies are so classified because they have a medium capitalisation and are smaller than large companies, while being much bigger than small companies.

Thus, these funds show a high potential for growth and future returns – this factor makes mid cap mutual funds an attractive investment proposition.

Leading mutual fund houses in India have been offering mid-cap stocks to investors for a few years now. These are good options to try because the share prices on large cap funds have increased dramatically over the last few years, thus making them impractical for those who don’t want to park large amounts of money in the scheme.

Mid cap equity funds: Why they do better than other funds

Over the last few years, mid cap mutual funds have far outperformed large cap funds and small cap funds in India. Experts predict that this trend will continue for a few more years. Thus, your investment in mid cap funds is bound to appreciate well over time.

• Mid cap equity funds offer even higher returns. They are best for long term needs and since they invest in medium sized companies with good growth potential, they offer good risk mitigation as well.
• Mid cap equity funds show better risk management and lower volatility than small cap funds. Your investment grows quickly because mid cap funds are often underfollowed in comparison to large cap funds.
• Mid cap mutual funds are more liquid than small cap funds, because mid cap companies offer more liquidity than their smaller counterparts. But you must check about exit loads charged by the fund house in case you wish to liquidate the investment before maturity. Mid cap funds offer less analyst coverage than their large cap counterparts.
• When buying mid cap equity funds, do check its past performance in bullish markets and your goals vis-à-vis your investment strategy and risk profile.