What are the advantages and disadvantages of mid cap funds?

In mid cap funds, a large portion of investment is done in companies with medium market capitalization i.e. having a market cap between INR 1.3 trillion to INR 6.5 trillion. Mid sized companies are of compact category, falling somewhere between small and large sized companies 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.

 Let’s look into –

 Advantages of mid cap funds are:

·      In the history of mutual funds, of mid cap funds have outperformed large cap funds, and the trend is not likely to change anytime soon.

·      Mid cap funds are lower risky and volatile as compared to small cap funds with high growth opportunities than large cap funds.

·      They are underfollowed in stock market as compared to large cap stocks, giving a huge opportunity to wise investors to grow their investment quickly.

·      Liquidity of mid cap funds is more as compared to small cap funds.

·      Mid cap companies have been in business long enough to avoid blunders usually made by small cap companies.

Disadvantages of mid cap funds are:

·      Mid cap fund gives less returns on investment and growth potential as compared to small cap fund.

·      During crisis, when the market sentiment is dipping, mid cap stocks plunge to more depths, hurting investors badly.

·      Mid-cap stocks suffer from liquidity constraints due to their smaller capital base i.e. number of shares offered by the company.

Happy Investing!

Advantages of mid cap funds are:

• 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 funds are:

• 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.