Your Guide to Mid Cap Mutual Funds

Among the types of these funds, mid cap mutual funds have become particularly interesting for many investors. These funds invest in mid-sized companies (usually classified as per their market capitalisation), which have good growth potential and stability.

Here is everything you need to know about mid cap funds. So whether you want to know what mid cap mutual funds are or just wish to find the best one for yourself, keep on reading!

What are Mid Cap Mutual Funds?

Mid cap mutual funds invest in the equities or stocks of companies that are in the ‘mid’ range of market capitalisation. With respect to the ranking by market cap, such companies usually fall between 101 and 250.

Note: Companies ranking outside 250 are usually considered small cap.

These companies are usually at the growth stage of their life cycle. They have the potential to deliver superior returns compared to large-cap stocks but with less risk compared to small-cap stocks.

Benefits of Investing in Mid Cap Mutual Funds

When you invest in the best mid cap mutual funds, you can enjoy the following -

• High Growth Potential: Mid-cap companies are usually those that have been in business for some time and have shown good performance. These companies are in their growth stage but have not yet achieved their maximum level of growth and profits. When you buy mid cap mutual funds, you get an opportunity to invest in such companies during this crucial stage of their development and increasing profits. This, in fact, is how you can get high returns in the long run.
• Diversification: Mid-cap mutual funds invest in multiple mid-sized companies across various sectors. This diversification is useful in reducing risk since the company is not putting all the eggs in one basket — if one sector crashes, the effect can be balanced by other strong sectors in the fund.
• Balanced Risk and Reward: In general, mid-cap stocks are less risky than small-cap stocks but with greater growth potential than large-cap ones. With such a better risk-reward proposition, mid cap funds are great if you wish to invest in mutual funds with good returns.

Cons of Mid Cap Mutual Funds

While mid cap funds are good to get the best of both worlds, they also carry certain risks just like any other market-linked instrument.

• Generally lower returns compared to small-cap funds
• Higher volatility than large-cap funds
• Usually more severe impact than large-cap counterparts if the market crashes

So while such funds can give you good returns, make sure that you choose the best mid cap mutual funds that are managed by expert professionals.

How to Invest in Mid Cap Mutual Funds?

You can invest in mid-cap funds via SIPs or in a lump sum amount.

• Systematic Investment Plan (SIP): You can invest your money in a mutual fund at set intervals: monthly, weekly, and more. Here, you can enjoy benefits such as cost averaging and financial discipline over time.
• Lump sum: As the name suggests, you put all your specific money in a mutual fund in one go.

Once decided, here’s how you can invest -

• Select a reputed bank or wealth management company that offers services related to mutual funds.
• Open an account for investment. This can be done online by visiting the company’s official website or offline by heading to its office.
• After your account is registered, open it and check all the investment options.
• Make use of filters to get the mid cap mutual funds’ list.
• After selecting the best mid cap mutual fund, start investing!

What are the Things to Remember Before Investing in Mid Cap Mutual Funds?

Take note of these factors before you start investing in mid cap mutual funds -

1- Investment Cost

Fund houses charge a fee via mid cap mutual funds expense ratio. This covers the management expenses, i.e. regular maintenance of your fund by a professional. To avoid significant costs, compare the top funds’ expense ratios and select one with a lower expense.

2- Risk

Although the best mid cap mutual funds are run by seasoned professionals, it doesn’t eliminate the market risk. In fact, compared to large cap funds, these mutual funds inherently carry a higher risk. So instead of putting all your money in a particular category, try to diversify your investment.

3- Previous Returns

How a mutual fund has performed in the past cannot be considered an indicator of how it will perform ahead. Nevertheless, it’s a good idea to take a look at the CAGR (compound annual growth rate) to know the average mid cap mutual fund returns — ideally for the 5 years.

4- Goal

While long-term investing is good for wealth creation, short-term investments are also good if you want quick returns in a short span. However, the strategy involved in both cases is quite different. To get the best returns from your mid cap mutual funds, understand your investment horizon and make sure to check its volatility and other factors.

FAQs