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A mid cap fund is one that focuses on investing in the stocks of mid-sized firms. They facilitate higher growth potential for investors as they are less volatile and riskier than small stocks. Through mid-cap funds investors can have a diverse portfolio.
How do Mid Cap Funds Work?
Mid cap mutual funds are those that deposit mainly in the equity of medium capitalization firms or mid cap companies. Stocks that rank from 101 to 250, aligned with market capitalization fall within the category of mid cap stocks. According to SEBI or the Securities and Exchange Board of India, these mid cap funds primarily invest in the equity of companies with a market capitalization that varies between Rs. 5000 to Rs. 20,000 crores. Mid cap funds work on the principle that stocks in these funds usually have a greater growth rate than large cap stocks and their volatility and risk factor is lower than small caps. These funds are useful for investors who want to invest long term and for reasons like repaying certain loans or say child’s higher education.
Things to Think About Before Investing in Mid Cap Mutual Funds
Before you consider investing in mid cap funds, it is good to consider the following factors:
- Mid cap funds are in the potential growth phase. So, they are prone to greater growth compared to large cap stocks. Those wishing to attain greater appreciation in capital can venture out to invest in mid-cap funds.
- Before investing in mid cap funds, you will have to check its historical performance. You can check the historical performance of the fund in detail as it reflects the companies it invests in. Else, you can check the individual performance of the companies whose stocks make up the fund.
- You must determine your own investment requirements and financial goals before investing in mid cap funds. Because, if you want considerable returns from equity funds, you must stay invested for a long time. So, before investing, you should think about the duration.
- You will have to contemplate on the expense ratio of the fund you are considering. If the expense ratios are high, they may directly impact your profit in the future.
Who Should Invest in Mid Cap Mutual Funds?
- Investors who can handle high risks can invest in these funds. This is because mid cap mutual funds are prone to market volatility and economic downturns. The funds also have higher exposure to risk compared to large cap variants.
- Mid cap funds are more suitable for people who want to invest for longer durations.
- This is because these types of funds may take a longer time to recover compared to large cap funds from unfavorable market conditions. Also, they yield higher returns when invested for a longer time.
- Mid cap funds are more suitable for investors who have a certain amount of knowledge about the market. They will then be able to analyze the risks associated with investing in a mid-cap fund and also the returns. This way, they can choose the best mid cap fund to invest in.
List of Best Mid Cap Mutual Funds to Invest in India 2024
Fund name | Category | Risk | 1 Y returns | Fund size in crores |
|---|---|---|---|---|
Motilal Oswal Mid Cap Fund | Equity | Very high | 81.27% | Rs. 15,940 |
HDFC Mid Cap Opportunities fund | Equity | Very high | 50.67% | Rs. 75,296 |
Quant mid cap fund | Equity | Very high | 44.85% | Rs. 9,367 |
Edelweiss mid cap fund | Equity | Very high | 61.9% | Rs. 7,401 |
Nippon India growth fund | Equity | Very high | 55.9% | Rs. 32,970 |
Kotak emerging equity fund | Equity | Very high | 50.0% | Rs. 50,601 |
SBI Magnum mid cap fund | Equity | Very high | 40.1% | Rs. 21,127 |
Baroda BNP Paribas Mid Cap fund | Equity | Very high | 52.0% | Rs. 2,173 |
Tata Mid cap growth fund | Equity | Very high | 47.8% | Rs. 4,466 |
HSBC Mid cap fund | Equity | Very high | 61.5% | Rs. 11,882 |
Sundaram Mid cap fund | Equity | Very high | 56.9% | Rs. 12,465 |
Invesco India Mid cap fund | Equity | Very high | 57.3% | Rs. 5,437 |
ITI Mid cap fund | Equity | Very high | 70.5% | Rs. 1,085 |
Mahindra Manulife Mid cap fund | Equity | Very high | 60.3% | Rs. 3,165 |
Baroda Mid cap direct fund | Equity | Very high | 27.5% | Rs. 92 |
Pros of Investing in Mid Cap Mutual Funds
- They have a huge potential for growth and can yield enormous returns during the journey.
- When you invest in mid cap funds, there is less risk of economic shocks than when compared to direct investment in stocks. This is because the investment gets distributed among the stocks of different mid cap companies.
- The Securities and Exchange Board of India (SEBI) has made it mandatory for all mid cap mutual funds to display their NAVs, expense ratios, and month end portfolios on their portals. It also regulates this data. So, investing in mid cap mutual funds enables and ensures transparency.
- It helps in diversification of investments across different mid cap mutual funds, thus avoiding investing in just one fund and increasing the risk.
Downsides of Investing in Mid Cap Mutual Funds
- Liquidity issues arise when investing in mid cap mutual funds. Mid cap mutual funds give good returns when invested for a long time. However, investments in mid cap funds is difficult to make during adverse market conditions, since it is tough to find buyers. During such market crashes, investors tend to go with large cap funds.
- Market volatility is a major issue concerned with investing in mid cap mutual funds. Mid-cap firms are more sensitive to market downs and may result in big losses during periods of economic uncertainties or crashes.
- The number of schemes that focus on mid cap funds are smaller. So, when the quantum of investments is more, investors have to go in for small cap or large cap funds.
FAQs on Best Mid Cap Mutual Funds:
1. Is it safe to invest in mid cap mutual fund?
Mid cap mutual funds are more susceptible to short-term market changes and market swings. So, they are risky. Individuals who are worried about short-term market variations should think about investing in diverse mutual funds.
2. Is there a time limit on large and mid-cap funds?
Large and mid-cap funds do not hold a lock-in period. You can enter or come out at any time.
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