Go through this article, before investing in Mid Cap Mutual Funds.
Equity Mutual Funds groups different types of individual stocks based on the asset size and market capitalization of the company. Market Capitalization is calculated by multiplying the value of the current market price of a share by the total number of outstanding shares. Types of Mutual Funds are defined on the basis of the types of investments they made in small-cap companies, mid-cap companies, and large-cap companies. Here in this article, we are going to discuss mid-cap mutual funds.
What is a Mid-cap Mutual Fund?
Mid-cap Mutual Funds invest in the company having a market cap between Rs 5,000-20,000 crores. They invest in stocks ranked between 100-250. Mid-cap Mutual Funds invest in mid-ranged companies, which can give higher returns than large-cap funds and have less volatility than small-cap funds. According to SEBI rules, mid-cap mutual funds have to invest 65% of AUM or funds in mid-cap companies.
Benefits of Investing in Mid-cap Mutual Funds
Better returns than large-cap funds: Large-cap funds invest in companies that have already grown a lot, they can deliver stable returns. These large-cap companies were mid-cap companies a few years back. So, mid-cap companies are future large-cap companies. So, the journey from mid-cap company to large-cap can deliver outstanding returns.
Having Low volatility than small-cap: Mid-cap companies are less riskier and have less volatility than small-cap companies. They have a stronger balance sheet than small-cap companies and also the majority of the time mid-cap mutual funds have less expense ratio and can deliver similar or better returns than small-cap companies, even with less risk.
Lesser-known: The majority of the mid-cap companies are underfollowed in comparison with large-cap stocks. Investing in mid-cap mutual funds can help investors to grow their investments quickly.
Liquidity: The liquidity of Mid-cap mutual funds is higher than that of small-cap mutual funds.
Who should invest in Mid-cap Mutual Funds?
Long-term investment Horizon: Mid-cap Mutual Funds invests in the future possible large-cap companies. Investors need to be patient enough and to have faith in the fund manager and fund. These companies are not strong financially as large-cap companies, so during economic slowdown companies may give negative returns in a shorter duration. One should invest for the long term while investing in any mutual funds.
Having Higher Risk Appetite: Investors should have a higher risk appetite because mid-cap mutual funds have the potential to grow faster than the majority of large-cap companies, but there is also risk attached with it. Many mid-cap companies don’t turn up to be large-cap companies, some may even go bankrupt. So, one should understand the risk attached to the investment you make.
Things to consider while investing in mid-cap mutual funds
- Investment Goal: One should think about his/her investment goals. Because mid-cap mutual funds are those for the individuals who are ready to play long-term games.
- Taxes: Taxes are calculated based on the duration of an investment. If you are invested for less than 1 year, STCG is applicable, and if more than that, LTCG is applicable. STCG:15% on profits, LTCG: 10% on the gains of more than Rs. 1 lakh. Indexation benefit is not provided.
- Expense Ratio: Every Mutual Fund has an expense ratio, which is an expense made to manage the fund. It is an annual maintenance charge to finance their expenses. It is deducted from the amount you invested. The lower the expense ratio, the higher will be the returns earned by the investors.
- Past Performance: Check the past performance of the mid-cap mutual fund in which you are planning to invest. It helps to check whether the fund is consistently performing well or not in the past. Past performance does not ensure future results but it deserves careful consideration. Warren Buffet wrote, “In the business world, unfortunately, the rear-view mirror is always clearer than the windshield”.
- Risk: All mid-cap companies can’t be large-cap companies. Even due to issues in the governance of the company, mid-cap companies can’t deliver good returns and mutual funds holding these companies will not deliver good returns.
List of top 5 mid-cap mutual funds
Here we will go through some of the best mid-cap mutual funds
| FUND NAME | RATINGS IN STARS(OUT OF 5) | 5Y RETURN
(CAGR) |
FUND SIZE
( IN CRORES) |
EXPENSE RATIO(IN %) |
|---|---|---|---|---|
| PGIM India Midcap Opportunities Fund
|
5 | 19.42% | 2,383 | 2.29% |
| Axis Midcap Fund
|
5 | 21.08 % | 12,812 | 0.51% |
| Edelweiss Mid-cap Fund
|
4 | 19.27% | 1,599 | 0.66% |
| Invesco India Mid-cap Fund
|
4 | 18.9% | 1,860 | 0.79% |
| DSP Midcap Fund | 4 | 16.59% | 13,457 | 0.86% |
This all data is of direct growth mutual funds and for lumpsum investments.
How to invest in Mid Cap Mutual Funds?
One can invest in mid-cap mutual funds in two forms either a lump sum or as a SIP. SIP is the best option for the one who doesn’t know how to time the market and he/she will be able to average out returns. One can start a SIP with a broker if he/she doesn’t know which funds to select, this process is called a regular plan and will have a higher expense ratio than direct plans. Another way is one can start SIP or invest Lumpsum amount, directly with the mutual fund house.
Conclusion
One should check the index returns and track the performance of his/her mutual funds at certain intervals of time. One should also have patience and a long-term view in order to create wealth. We have covered different aspects of mid-cap mutual funds, which one needed to understand in order to get started to invest in mid-cap mutual funds.