What Are Mid Cap Mutual Funds?

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.

What Is The Investment Regime in 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.

Top 5 Advantages of Mid Cap Funds

  1. Significant Wealth Creation

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.

  1. Diverse Investments

Equity mutual fund schemes allocate your invested amount to various companies. You will have stocks of diverse mid-cap companies from various sectors. 

  1. Moderate Risk

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. 

  1. Liquidity

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.

  1. Low Investment Amount

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.

4 Important points to Consider Before Investing 

  1. Long-term Investment Goals

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.

  1. Risk Tolerance

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.

  1. Returns and Investment Period

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.

  1. Expense Ratio 

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.

Tax Implications

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 15%. And Long Term Capital Gains are taxed at 10% above INR 1 lakh.

Who Should Invest in Mid Cap Funds?

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.

Conclusion

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-

Top 5 Benefits of SIP

Large Cap Mutual Funds: Basics, Advantages, Taxation, & More

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