Why are mid-cap funds a must-have in your portfolio?

Why are mid-cap funds a must-have in your portfolio?

by Nutan Gupta Last Updated: 2017-05-30T03:30:00+05:30
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Investment links with the term 'stability'. But won't you rather be interested in seeing your investment rise significantly in a stipulated duration? The answer to this question lies in mid-cap funds. Mid-cap companies are those companies that have a market value in the range of Rs 5000 - 20,000 crore. In the current market trend, mid-cap stocks offer what an investor ideally wants; higher growth and lesser risk. As the former statement suggests, mid-cap companies have been regularly outperforming large-cap companies as far as fund growth rate is concerned. Alongside, it offers a comparatively lower risk factor than other small-cap funds.

What should I expect from it?

Large cap companies and their funds are the ones you should go for when safety is primary. Activities revolving in and around their funds are constantly monitored, with every detail being up-to-date. That isn't really the case with mid-cap funds. These funds have a fair chance of having a significant difference in their market price to its actual value. An active investor, with his end of research, can swiftly swoop into lucrative fund prices.

Due to their activities being less monitored, mid-cap funds often tend to perform well in a bull market. Furthermore, investing in mid-cap funds through Systematic Investment Plan (SIP) is another way to bolster your longer term market return.

Mid-cap companies make for easier takeover targets as well. Naturally, the acquired company's fund value rises after a takeover. Thus, this increase in fund value can be tapped smartly by the investor in his/her favor.

Mid-cap funds are also less affected by any macro-economic turmoil in the market. When the talk comes to liquidity, a mid-cap company offers more liquid asset flow compared to a small-cap company.

Are there any drawbacks involved?

According to the former statement, mid-cap companies follow an upward 'returns' curve in the bull market. When it comes to the bear market, the scenario is exactly mirrored. These funds, also including the small-cap funds, are hit hard during a bear market.

When you are looking for high-quality stocks, investing in a mid-cap fund isn't the right move. Mid-cap companies are always riskier than large-cap companies. Also, liquidity through a large-cap company far outweighs than that of a mid-cap company.

To sum it up

An investment market without risks is a reality in a fantasy world. When it comes to funding investment, there are many rules that govern accordingly. For instance, this one thumb rule that suggests its investors put 70% of his money in large-cap companies, 25% in mid-cap and 5% in small-cap companies. Despite numerous theories, it is your personal goal that draws a line in between luxury and necessity. Your portfolio should hence not be governed by stereotypical rules, for the realm beyond large-cap funds offers a greener pasture ready to be grazed.

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