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Should I invest in mid cap funds?

Pijush Kanti Biswas

In mid cap funds, a large portion of investment is done in companies with medium market capitalization i.e. having a market cap between $1 billion to $8 billion. 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.

Mid cap stocks have shown exponential growth in recent past and you can make lots of money investing in funds having mid cap stocks, but how much you invest in mid cap fund depends on your risk appetite. And remember, all mid-cap companies are not the large cap of tomorrow’s. 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.

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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.

The Risk

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.


A mid cap fund is a type of fund that lies between large cap and small cap funds in terms of company size. The company size is decided by the market capitalization of the company. Mid cap companies are between 100 and 250 on the scale of market cap. These funds usually offer more growth than large cap funds and less volatility than small cap funds. Mid cap fund companies are considered to be developing companies with established business. These funds tend to be riskier than large cap funds. Mid cap funds can be a great investment for those investors with greater return opportunities with a slightly higher risk than large cap funds. Mid cap funds have higher ability to produce greater returns through more dynamic businesses that tend to be more growth focused than the big businesses. These can provide a better investment value since they have higher market prices.


Mid cap funds are funds which invest a major component of investor’s money in mid cap stocks. These funds have an objective of seeking capital appreciation through investment in growth stocks. Investments in these funds are usually diversified across various stocks in the mid cap category to reduce the risk and maximize returns


Investing in mid cap funds gives investors a chance of earning high returns which usually range between 18-20% in the long term but the tenure of investment also needs to be at least 3 years to maximize your returns and minimize the risk of short term losses due to slow downs and recessions in economic and business cycles.


Mid cap funds are suitable for investors who are willing to take moderately high amount of risk with their capital, have 3-5 years as their minimum time horizon for investments and are looking for above average returns in the long run.


Yes, you can definitely invest in mid cap funds if your investment criteria matches with the above stated objectives. You can invest either in lump sump or through SIP each month and you can further diversify your risk by investing in a combination of 2-3 funds.

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