What are mid-cap mutual funds?

Mid-cap mutual funds are gaining a lot of traction these days. Many investors are inclined towards investing in them because they are regarded as the future market leaders. Mid-cap mutual funds typically invest in mid-size companies. These companies have tremendous growth potential and are likely to offer better returns on investment. The right business strategy, good management and strong fundamentals make mid-cap companies grow rapidly.

This article talks about the meaning of mid-cap mutual funds, who can invest in them, the advantages of investing in them and more.

What Are Mid Cap Mutual Funds?

As mentioned earlier, mid-cap mutual funds typically invest in mid-cap companies. These companies have a market capitalization between Rs. 500 crores and Rs. 10,000 crores. Out of the entire market cap of all the BSE listed companies, mid-cap companies cover 80 to 90 percent share. These companies are listed on the BSE Midcap Index. As per SEBI’s recent guidelines, a mid-cap segment comprises of stocks that are ranked from 101 to 250 by market capitalization.

Who Can Invest In Mid Cap Mutual Funds?

Mid-cap mutual funds are ideal for investors who have a longer investment horizon of 7 to 10 years and have a bigger risk appetite. Mid-cap mutual funds are known to generate high returns commensurate with high risks. Therefore, if you consider investing in mid-cap mutual funds, you must be ready for the possibility of bearing moderate losses on your investments.

It is advisable that new or first-time investors should stay away from mid-cap mutual funds because their risk-bearing capacity is comparatively low.

Why Should You Invest In Mid Cap Mutual Funds?

• One of the biggest benefits of investing in mid cap mutual funds is that they have the potential to create a huge wealth in the long run as compared to large-cap mutual funds.
• Mid-cap mutual funds are known to perform better than the large-cap mutual funds in the bullish markets.
• Mid-cap companies have tremendous growth potential as compared to large-cap mutual funds. This means investors can largely benefit from their investments.
• Since mid-cap companies have a huge thrust for growth, they tend to be more focused as compared to their counterparts. They are known to quickly respond to new innovations and changes in the market.
• Mid-cap stocks are less volatile as compared to small-cap mutual funds. Thus, investors can earn steady returns on their investments.

However, before you consider investing in mid-cap mutual funds, there are a few things you must consider for enhanced benefits.

Things To Consider Before Investing In Mid Cap Mutual Funds

• Before investing in mid-cap mutual funds, you should analyse the performance of the fund in the bullish and bearish market cycles. You may do so by seeing the consistency of performance or checking its rating or seeing its historical returns.
• In order to reap the benefits from mid-cap mutual funds, you must be patient enough to hold on to your investments for at least seven to ten years.
• Mid-cap mutual funds are ideal for investors who are young and can have a longer investment horizon. This is because the benefit of compounding can be achieved only in the long run.
• Mutual fund houses charge a fee for managing the fund and this fee is called as expense ratio. It is wise to understand the expense ratio charged by the AMC or fund house before investing. You should always try and choose a fund house that charges a lower expense ratio.
• The performance of the mutual fund largely depends on the experience and expertise of the fund manager. Therefore, choose a fund having an expert fund manager showcasing a strong performance record.

Conclusion

Investing in mid-cap mutual funds can be very rewarding. They provide great diversification to your overall portfolio and help you earn high returns on your investments. All you need to do is, take care of the risk exposure and invest accordingly.

For any help related to investments, you may contact Kotak Securities.