Mid cap mutual funds are equity funds that invest most of your invested amount into mid-cap companies. These companies are ranked from 101 to 250 on the market capitalization chart and have a decent track record. These funds could be slightly riskier than large-cap but have the potential to deliver better returns.
Here’s what to expect from Mid cap mutual funds.
As mentioned above, Mid-cap companies are ranked from 101 to 250 on the market capitalization chart released quarterly by AMFI (The Association of Mutual Funds in India).
According to SEBI (Securities and Exchange Board of India) guidelines, these mutual fund schemes invest 65% of total assets into mid cap companies. The remaining assets can be allocated to large-cap or small-cap companies. Fund managers decide the allocation to maximize returns.
Mid-cap companies may become large-cap companies in the future. With decent performance, lower risk than small-cap funds, and a high growth factor, you can expect handsome returns. If you hold your investment for 5 to 7 years or more, mid-cap mutual funds can grow your wealth significantly.
Equity mutual fund schemes allocate your invested amount to various companies. You will have stocks of diverse mid-cap companies from various sectors.
These funds might be riskier than large-cap but are less risky than small-cap. Investors with an aggressive risk appetite can certainly consider mid-cap mutual funds.
Equity mutual funds have no lock-in period. You can redeem your investment from mid-cap mutual funds whenever you want. But it is recommended to keep the investment for more than a year for tax benefits and even longer for better returns.
You can start investing in mid-cap mutual funds via SIP with only INR 500-1000 per month. Equity mutual funds do not require a higher lump sum amount. You can always invest more when you have more money.
Always consider your investment objectives and long-term goals before investing in any mutual funds. It’s important to check whether the fund’s objectives match your investment portfolio.
Mid-cap equity funds are riskier than large cap. Even though the fluctuations might not affect the performance over a long period of time, it’s always better to evaluate your risk profile.
Contact VNN Wealth Experts to get insights on your risk profile.
Mid-cap funds can deliver better returns if you hold the investment for 5-7 years or more. Short-term returns might not be consistent. So if you have a goal in mind, make sure to align the investment period to earn the desired returns.
The expense ratio is nothing but a fee you have to pay to fund houses to handle your assets. Before investing in mid-cap funds, study and compare the expense ratio.
Note-Higher expense ratio is not always bad. Compare the scheme performance, fund manager’s track record, and expense ratio. Many investors are willing to pay a higher expense ratio if the returns are superior.
Like any other equity funds, Mid cap funds are taxed on Short Term Capital Gains (less than 12 months) and Long Term Capital Gains (more than a year).
Short Term Capital Gains are taxed at 20%. And Long Term Capital Gains are taxed at 12.5% above INR 1.25 lakhs.
As mentioned above, Mid-cap funds are moderately risky. You can invest in these schemes if you can take moderately high risk. Investors who won’t panic-sell when the market falls can consider adding mid-cap funds to their portfolio. Keep in mind that you may want to hold your investment for 5 years or more to achieve desired returns.
Mid-cap mutual funds can be slightly risky, but you have an opportunity to earn superior risk-adjusted returns. As we always say at VNN Wealth, equity funds follow the trend of the economy over the long term.
Not sure where your portfolio stands and what your risk profile looks like? VNN Wealth experts can help you plan your investments better. We are just a call or an email away.
Also read-
Large Cap Mutual Funds: Basics, Advantages, Taxation, & More
