Mid Cap Mutual Funds

When it comes to investing in equity mutual funds, choosing the scheme with a focus on the right market capitalization is paramount to meeting your investment objectives. The market capitalization of a company helps understand the benefits of investing in it and the associated risks. There are different types of equity mutual fund schemes categorized based on the market capitalization of the companies that they prefer to invest in. Here, we will explore Mid Cap Mutual Funds and discuss some essential aspects of these schemes.

List of Mid Cap Mutual Funds

• Motilal Oswal Midcap Fund Direct Growth
• SBI Magnum Mid Cap Direct Plan Growth
• HDFC Mid Cap Opportunities Direct Plan Growth
• Quant Mid Cap Fund Direct Growth
• Nippon India Growth Fund Direct Growth
• Kotak Emerging Equity Fund Direct Growth
• PGIM India Midcap Opportunities Fund Direct Growth
• Axis Midcap Direct Plan Growth
• Mirae Asset Midcap Fund Direct Growth
• ICICI Prudential Midcap Direct Plan Growth

What are Mid Cap Funds?

Mid Cap funds invest in equity and equity-related instruments of Mid Cap companies. According to the Securities and Exchange Board of India (SEBI), Mid Cap companies are those that are ranked between 101 and 250 in the list of companies according to market capitalization. 

Since Mid Cap companies fall between the small-cap and large-cap companies, they offer certain advantages and disadvantages to both of them. These funds usually offer better returns than large-cap funds but are more volatile than them. On the other hand, they are more stable than small-cap funds but tend to offer lesser returns.

In a nutshell, Mid Cap mutual funds are the perfect combination of risk and return. As an investor, if you select the schemes prudently, with a great selection of stocks, diversification across sectors, and good fund manager, you can expect much better returns.

Features of a Mid Cap Fund

Keep these characteristics in mind before investing in Mid Cap funds:

1. Long-Term Investors

Most equity investments are volatile, and hence, staying invested for a longer period helps in securing good returns. Mid Cap companies are in the phase of growth, and a few of them are likely to become tomorrow’s large-cap companies. Hence, it is important to have an investment horizon of 8-10 years to benefit from investing in Mid Cap stocks.

2. Expense Ratio

All fund houses charge an expense ratio as administrative and fund management costs. It is a small percentage of the total assets of the fund. According to SEBI’s mandate, the upper limit of the expense ratio is 2.50%. Finding a scheme with a lower expense ratio means better returns on your investment.

3. Fund Management

At the end of the day, the fund manager is the one who makes the decisions about buying/selling stocks from the portfolio. Hence, it is important to look at the performance of the fund manager to ensure that your money is in ‘good’ hands. Also, the fund house needs to be selected carefully. Look at the performance of the fund house over the years and how the research and investment team have countered market volatility in the past.

4. Suitability

Mid cap equity fund offer great compounding benefits to investors. However, compounding requires time and offers the best results to young investors. If you are nearing retirement, then you need to choose the schemes keeping your age in mind. These funds are usually recommended to young investors with age in hand to benefit from the power of compounding.

How Does a Mid Cap Mutual Fund Work?

Mid Cap Mutual Funds carry a higher risk than Large Cap Funds. Hence, you must opt for these schemes if you have a higher risk tolerance. Also, you need an investment horizon of around 8-10 years.

Remember, the Mid Cap segment holds a lot of opportunities for investment and wealth creation. Hence, choosing a scheme that focuses a lot on researching the market and finding good investment opportunities is important. If you are averse to taking risks, you must reconsider investing in such funds. Also, ensure that you consider your financial goals, risk preference, and investment horizon before investing in Mid Cap funds.

How Should You Invest in a Mid Cap Mutual Fund?

You can invest in Mid Cap mutual funds directly through the issuing company or through Groww by following the steps below:

Step 1: Visit the App store or Play Store. 

Step 2: Download the Groww application and sign up. 

Step 3: Post signing up through KYC, you can start investing in Mid Cap mutual funds of your choice. 

Why Should You Invest in a Mid Cap Mutual Fund?

You can invest in Mid Cap funds for the below-mentioned reasons:

1. Returns

Mid Cap mutual funds usually offer better returns than large-cap mutual funds. Belonging to the equity fund category, they are slightly more risky than large-cap mutual funds, but they often provide better returns than large-cap funds if market conditions are favourable.

2. Portfolio Balance

These funds offer a balance in the portfolio. They offer the stability of large-cap funds and the growth of small-cap funds.

Taxation Rules of Mid Cap Mutual Funds

Mid-mutual funds are subject to dividend distribution tax and capital gains tax as explained below:

Capital Gains Taxes

• STCG: For a holding period of up to a year, it is taxed at 15%.
• LTCG: For funds with a holding period of more than a year, there is no tax up to the amount of Rs. 1 lakh; for more than that amount, it is taxed at 10% without indexation.

FAQs

Q1. What are Mid Cap Mutual Funds?

Mid cap fund meaning: A Mid Cap mutual fund is a kind of equity mutual fund that primarily invests in Mid Cap companies. 

Q2. What does a Mid Cap mutual fund invest in?

Such mutual funds invest a high percentage in Mid Capitalization companies. Such companies have a market capitalization between Rs 5000 crore and Rs 20000 crore. 

Q3. What is the investment time horizon for a Mid Cap mutual fund?

These mutual funds are known to perform well in the long term. Therefore, you can see positive results when you invest in these funds for a long duration. 

Q4. Are Mid Cap funds risky?

Mid cap equity fund are usually considered more risky than large-cap funds, but less risky than small-cap funds. 

Q5. Is SIP or lumpsum better for Mid Cap fund investments?

SIPs may be a better investing option if you are an investor with a small but consistent quantity of money to invest. Lump Sum investments may be more advantageous for individuals with a reasonably high investment amount and risk tolerance.

Disclaimer - Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.