Top 10 Mid Cap Mutual Funds

Mid Cap Equity funds category invest mostly in the stocks of mid cap companies. They carry a higher risk factor but provide better returns. However, one should be aware of the fact that these funds are very volatile and could become a reason for loss if invested for a shorter period.

It has returns that are taxed at 15% if sold before one year, post this period a 10% tax is applicable on the gains

A mid-cap fund refers to a kind of stock fund that allows us to invest in mid-sized companies. In mutual funds market, size of a company is determined by its market capitalization value. Market capitalization is nothing but the market value of a company’s outstanding shares.

If we consider life cycle of a business, mid-cap refers to companies which have achieved a middle level growth and are reflecting rapid growth year on year. To bring diversification to a mutual fund portfolio in terms of balancing the risk, mid-cap funds are considered as the most preferred solutions as compared to small-cap funds (funds of companies which are in phase of resolving initial setup challenges) and large-cap funds (funds of companies which are very well established in the market and hence provide marginal rate of growth).

Mid-cap funds are less volatile as compared to small-cap funds and carry lower risk to return ratio. However, when compared to large-cap funds, mid-cap funds are more volatile and have higher risk to return ratio.

To balance risk in your portfolio, it is generally advised that you choose a couple of mid-cap funds and invest in them for a longer duration so that their performance is realized at true value. The reason being the dispersion of returns between best performing and average performing mid-cap funds is huge and hence you might let go certain funds which are not performing well, but at the same time if you have a good number of mid-cap funds in your portfolio, then you can embark on the better performing funds and ultimately increase the realizable returns of your portfolio.

Purpose: A good fund category if you are a risk taker in investment and looking for a high-rise in the long term.

Other details on Mid Cap Mutual Funds

Thinking of investing in an equity mutual fund, it is very crucial to decide on most appropriate market capitalization to choose the fund from – i.e. among large cap, mid cap, small cap, sectoral cap or multi-cap fund category. Market capitalization is calculated by multiplication of the number of outstanding shares company offered with the current market price of one share. Each category of market capitalization categories has its own advantages and disadvantages. In mid cap funds, a large portion of investment is done in companies with medium market capitalization i.e. are bunch of 100-250 companies in a market after large cap companies. Mid cap funds show some of the high growth prospects as small cap funds and often outperforming large cap funds. But these funds are relatively less volatile as compared to small cap funds due to their larger capitalization. Mid cap funds are compact fund category for the equity market, falling somewhere between small and large cap funds and therefore are very popular among investors. Recently in Indian market, big investors like mutual fund houses, started investing in mid-cap stock, because the share price of large caps has increased substantially. That results in the prices of the mid-caps, climbing upwards steadily and made them an attractive investment category with high growth potential. So, to sum it up, mid-cap funds can be great investment instruments for investors looking for funds with high return possibilities, without the volatility of small caps and index-related returns like those of large cap funds.

Advantages of Mid Cap Funds

Mid cap funds have lower volatility than small cap funds. Mid cap funds offer more growth opportunities than large cap funds. These funds have less analyst coverage as compared to large cap funds. A mid cap company offer more liquidity than a small cap company.

Disadvantages of Mid Cap Fund

Mid cap funds follow an upward returns trend in the bull market. But it also mirrors the same in the case of bear market. These funds might hit are hit hard during a bear market situation. In case of high quality stocks, mid cap funds are not appropriate since they have a higher risk factor involved. During an economic crisis, larger, well established companies tend to do better than mid cap ones and provide a more stable, regular return. Mid cap companies tend to have lower growth potential than smaller companies and hence provide less investment returns comparatively.

Should I invest in Mid Cap Mutual Funds?

Mid cap funds mainly involve the companies with market capitalization that can be anywhere between Rs 50 billion and Rs 200 billion(the exact data may vary). This category is able to deliver very high returns when markets are doing well. These fascinating returns are what make investors go for them. But on other side they also get the most of the beating when market is otherwise in a bad phase. The variation between fall and rise can be huge in mid cap equity funds which makes an investor think whether to invest in mid-cap equity funds or stay away from it or invest partially. Considering the performance of the mid cap funds, when you look at the market history then we see the outperformance of mid cap index during the bigger market crashes. Take for instance 2008 and 2010.The mid cap index have outperformed the Sensex and Nifty by almost 17-25%. Similarly, if you look at the performance of mid cap and large cap index in last three to five years then mid-caps have delivered almost 80-100% in comparison to large cap index 25-40%. While analyzing the calendar year performance, in 2015 large cap was down by almost 2% while mid and small cap index have delivered 6-10% return. Going back to 2011, the year saw large cap falling by 23% whereas mid and small cap fell by almost 27%. So the historical picture shows that mid cap tend to deliver superior returns but also tend to fall higher during market downfall. Mid Cap segment is highly volatile. If they can deliver outperformance from other categories and their benchmarks by huge margins then they also get the most beating when the markets are down. Where a large cap equity funds will restrict its fall the mid cap fund has all potential to go down. This is primarily due to the underlying stocks they invest. During the market fall of 2015 some mid cap stocks crashed by as high as 80% while large cap remain on course. So if you have high exposure to this sector then you can expect a higher downfall from your peers who might be taking bet more on large cap. Advice to invest or not in mid cap funds: Going with midcap funds can be rewarding for your investment portfolio considering the returns they can deliver. However, you must be invested for a long time period and stay with till the cycle unfolds. Ideally a mid-cap exposure of 25-30 % in your portfolio should be good. Investors who take a higher bet, being attracted by fascinating returns, should remember that their portfolio can see much higher downfall during adverse scenario which they should be ready to bear. Fund manager is an essential ingredient to the success of a mid cap fund. Funds where fund manager stick longer do well in long term than funds which see a higher movement. Lastly the corpus of the fund may be a drawback considering the limited scope of mid-caps stocks. For example, ICICI Pru Discovery has become a multi-cap fund now. Invest in mid-cap funds to enhance your portfolio returns but do a wise selection, aim longer horizon and do not bet too much of your money.