Mid cap funds primarily invest in shares of companies between 101th and 250th rank. Equity funds are classified as large cap, mid cap and small cap based on the market capitalisation of their stocks. As per SEBI (Securities and Exchange Board of India) guidelines, large cap companies are the top 100 companies. Companies below the 250th rank are small cap companies.
There are many benefits of investing in mid cap funds, especially if you are a relatively new investor. This post will help you understand about mid cap funds, their benefits, limitations, taxations and factors to keep in mind before investing. Read on!
Mid-cap funds are open-ended equity funds that invest at least 65% of their corpus in mid-cap stocks. The rest gets invested in small-cap or large-cap companies as stated in the relevant Scheme Information Document (SID). Mid-cap companies have a market capitalisation between Rs. 16,900 crore and Rs. 47,400 crore.
Market capitalisation is one of the main criteria for selecting equity investments as large-cap, mid-cap and small-cap stocks carry different risks/rewards. While large-cap funds are known for being the least volatile, small-cap stocks can offer the highest growth potential. A mid-cap fund falls between the two; it offers a balance between risks and returns.
Mid-cap mutual funds invest in companies with fairly high growth potential but without the risks of small-cap funds. These companies have certain stability and scale that helps to provide resilience against short-term shocks. Individuals investing in mid-cap funds tend to benefit from their underlying growth opportunities.
Also Read: Small, Mid And Large Cap Funds: A Detailed Comparison Before You Invest!
Also Read: How To Grow Your Money With Mid Cap Funds
Successful mid-cap companies can grow to become large-cap companies. They have the potential to offer above-average returns. Some mid-cap stocks are undervalued and under-researched providing an opportunity for high growth. Investors looking to capitalise on the growth potential of these companies may want to invest in mid-cap funds.
However, these equity funds are also highly volatile and carry considerable risks. Some of these companies are relatively new and carry risks of failure. If you can bear short-term volatility for long-term wealth accumulation, these funds can be a suitable option for you.
Mid-cap funds work best for those willing to take considerable risks for high potential growth. These also work well for individuals seeking portfolio diversification.
Investors looking to participate in the growth of India’s emerging mid-cap companies may want to take a look at Navi Nifty Midcap 150 Index Fund. Its total expense ratio (TER) of 0.12% is one of the lowest among index funds. Visit Navi Mutual Fund and start investing with an amount as low as Rs. 500.
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
Also Read: List of Best Value Mutual Funds To Consider in 2022
Mid-cap funds invest in listed companies ranked between 101 and 250 in terms of full market capitalisation. They display higher growth potential than large-cap funds without exhibiting high risks associated with small-cap funds. Before investing in mid-cap mutual fund schemes, you should check the scheme’s performance against a benchmark as well as its investment objective and risk profile.
Ans: Given are some distinct advantages of mid-cap companies over large-cap ones.
These companies have more room for growth.
They stick to their core sectors instead of diversifying into unrelated areas, which increases the efficiency of their business cycles.
Ans: Large-cap funds invest in companies that dominate the industry and have a significant market share. Their underlying stocks are very stable and hold well during times of recession. The low volatility of large-cap funds makes them a preferred option for risk-averse investors.
Ans: Mid-cap funds invest in companies with a higher growth potential than large-cap funds but do not come with the risks of small-cap funds. Small-cap funds invest in companies from rank 251 onwards. These companies are in a growth phase and are yet to achieve the scale of mid-cap companies.
Small-cap funds are highly volatile even when compared to mid-cap funds. Thus, investors need very high-risk tolerance and a long term investment horizon to bear the volatility of these funds.
Ans: No, mid-cap funds do not come with a lock-in period, unlike ELSS mutual funds or close-ended mutual funds. Investors can redeem their units at their convenience by placing a request with the fund house.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.