Mid Cap Funds
What are Midcap Funds?
A Midcap Fund or other pooled investment concentrating on businesses with market capitalizations in the middle of the spectrum of listed equities is known as a mid-cap fund.
Compared to large-cap companies, mid-cap stocks often have higher growth potential for investors while being less volatile and risky than small-size stocks.
Mid-cap funds enable investors to hold a diversified portfolio of these types of companies conveniently and affordably. Mid-cap funds can follow several benchmark indices, including the S&P 400 and Russell 1000.
Who should invest in Mid-Cap Funds?
A class of equity mutual funds known as "mid-cap funds" invests in midcap stocks. Companies with mid-cap stocks fall between 101st and 250th in market capitalization. Investors ready to assume the risk connected with them can invest in midcap funds because they are pure equity funds.
In the long run, mid-cap fund returns can produce significant profits. These businesses are likewise quite erratic. Mid-cap companies also have strong growth potential.
One can invest in top-performing mid-cap funds to reach one's long-term financial objectives. Mid-cap mutual funds are another option for investors unaffected by short-term volatility. Due to the companies' strong potential for growth, they are beneficial for portfolio diversification. Therefore, midcap funds are a good option for investors aiming to build wealth over the long term. However, there is a considerable level of risk attached to these funds.
Features of Mid Cap Funds
- Competitive Statistics
Mid-cap Mutual funds buy stocks of mid-cap companies. If they perform well enough, these businesses have the potential to expand and move up to the large-cap category. They offer competitive returns and have significant growth potential, as evidenced by the fund’s performance.
- Payments
Mid-cap companies offer superior returns than large-cap companies over the long term given their growth potential and risk element. The performance of mid-cap growth funds also reflects this.
- Appropriate for Long-Term Investors
Due to their superior long-term performance, mid-cap growth funds are best suited for long-term investing. This is because of the long-term potential for growth of the businesses that these funds invest in.
- High potential for growth
As the name implies, mid-cap equities supplied by medium-sized companies aren’t on par with large-cap enterprises. Stocks of medium-sized businesses have the ability to generate large returns on investment due to their potential for long-term growth.
- Returns can successfully outpace inflation
Mid-cap companies have the potential to outperform inflation in the long run due to their ability to provide startlingly high rates of return on investments.
- Risky and safe investment tactics
The risk factor for investing in mid-cap companies is higher. This is so that mid-cap stocks, which aim to provide high returns, can invest in securities with a higher risk component. High rewards also typically come with higher process risks.
Mid-cap funds can support high-risk and low-risk investing strategies, depending on the state of the market, providing investors with stability and growth. You can quickly achieve your financial goals by including mid-caps in your portfolio.
Taxability of Mid Cap Funds
Taxation on mutual fund investments becomes a factor when the investor chooses to redeem the mutual fund units.
- According to the Income Tax Act, any growth in this investment is taxed as “Capital Gains.”
- Since at least 65% of the net assets of mid-cap funds are invested in equity equities of mid-size businesses, these funds may be categorized as equity-oriented mutual funds for tax purposes.
- Furthermore, the investment duration affects the tax rate that applies to such gains.
- Mutual fund units held in mid-cap funds for less than a year are referred to as having short-term capital gains (STCG), which are taxed at a special rate of 15%. (plus applicable cess and surcharge).
- Contrarily, profits from mutual fund investments with a holding duration of 12 months or longer are categorized as Long-Term Capital Gains (LTCG), which are subject to a 10% tax rate (plus any relevant cess and surcharge) and are not indexation-advantaged. Additionally, for a total of Rs. 1 lakh per year, the investor may benefit from an exemption from LTCG for equities shares and equity-oriented mutual funds.
Investors may think about investing in mid-cap mutual funds to profit from these firms’ growth stories since many of them are at the crossroads of being tiny companies in the past and large-cap organizations in the future.
Risks Involved With Mid Cap Funds
Benchmarking Mid-Cap Funds Is Challenging
This is a particular issue that affects mid-caps and small-caps only. Because they represent the largest firms in the market in terms of market capitalization, the Sensex or the Nifty can readily be used as a benchmark for the large-size fund. When comparing large-cap diversified funds, benchmarking is easier.
However, the mid-cap index alone is a misleading term. Because mid-caps are so diverse, it becomes challenging to group them under one category and build an index out of them. Even when the index is initially constructed, all it essentially reflects is a collection of businesses with comparable market caps that are trading.
Liquidity Risk Is a Concern
When markets are not in a crisis, as in 2007 and 2008, this risk may not be as obvious, but mid-cap stocks may be the most vulnerable. For instance, a few mid-cap equities are heavily exposed to large AMCs. We must remember that FII activity is higher in large-cap equities than in mid-cap stocks.
That implies that locating buyers when the sale begins at a counter can be challenging. These funds do in fact, face a real liquidity risk, which was evident throughout the years of the financial crisis. Investors in mid-cap funds can suffer significant losses due to this scenario.
Mid-Cap Funds May Experience Volatility near Market Peaks
Despite having targeted business models, for the most part, mid-caps still have some inherent risks. For instance, most mid-cap companies rely too much on a particular line of business or a select group of clients.
These mid caps frequently run both of these hazards. Consider how businesses like Amtek Auto and Bhushan Steel found themselves in serious problems after their expansion gamble failed. These mid-caps are typically more susceptible to price shocks when market valuations are high and the markets are volatile.
Advantages of Mid-Cap Funds
Compared to individual mid-cap equities and other fund kinds, mid-cap funds have some advantages. Holding only a few mid-cap funds is typically significantly riskier than holding multiple large-cap companies, despite being less volatile than small-cap stocks. Investors can benefit from the growth potential of mid-cap funds without taking on company-specific risks by investing in a mid-cap fund.
Mid-cap funds may have a slightly different pattern than large or small equities. They are helpful for portfolio diversification a result. Long stretches in the past have seen either large or small stocks do better. Investors can avoid veering too far off course by selecting a mid-cap fund.
Money Generation
Long-term growth potential is positive for mid-cap funds. The likelihood of earning sizable returns is considerable for investors who invest in these mutual funds with a long time horizon. In turn, this offers the chance to build wealth over the long term.
Liquid Funds
These investments can be liquidated anytime because they are open-ended equity mutual funds. Except in the case of equity-linked savings schemes, they do not have a lock-in period. In the event that you require cash, you can always sell the units in these funds.
Professional Administration
Mid-cap funds are professionally managed, which can be advantageous to you. Mid-cap funds are managed by only skilled and qualified fund managers, which might be helpful for your returns.
Diversification
Mid-cap funds make investments in a range of mid-cap businesses from various industries. This guarantees that your investment is well-diversified throughout the nation’s diverse industries.
Who Are These Funds Suited For?
Mid-cap equity funds carry a higher level of risk than large-cap equity funds. A slowing economy can harm the stocks of large corporations. At the same time, these funds have the potential to outperform the market. However, before investing in the finest mid-cap mutual fund, consumers must carefully analyze all factors.
Here is a list of factors to be considered before investing in mid-cap funds:
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Performance of Mutual Funds:
Before making an investment decision, one must consider the performance of the investment. Investors must evaluate mid-cap funds’ historical performance. They must evaluate the fund’s performance during the last 5-7 years. Compare the fund’s performance to that of the midcap fund category. Compare your results to the benchmark. Investors can choose mid-cap mutual funds to invest in only if the funds outperform the category and the benchmark.
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The expense to Income Ratio:
When investing in a mutual fund, it is critical to analyze the fund’s expense ratio. SEBI has set expenditure ratio caps for mutual funds based on type and category. However, investors must choose funds with the lowest expense ratio.
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Taxation:
Mutual fund taxation is critical. This is because investors invest in getting taxable returns. Mid-cap funds do not qualify for tax breaks under Section 80C of the Income Tax Act. Mid-cap funds’ returns are likewise taxable. Short-term capital gains (gains made within one year of investment) are taxed at 15%. Long-term capital gains are taxed at a rate of 10%. Furthermore, long-term capital gains are taxed if they exceed INR 1,000,000 in a fiscal year.
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Financial Objectives:
Financial objectives are crucial considerations when selecting mid-cap funds. Mid-cap mutual funds are best suited for long-term financial goals such as a child’s education, marriage, or home construction (after ten years). Mid-cap funds are not appropriate for short-term financial goals like purchasing a car or going on a vacation.
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Age:
An investor’s age should be considered before investing in midcap funds. Young investors will have long investment horizons and few financial obligations. As a result, they will be more willing to take risks than those nearing retirement. As a result, investors must examine their age before investing in these funds.
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Risk Comprehension:
Investors may be willing to take risks. They may, however, be unwilling to incur the danger. Before investing in mid-cap funds, investors should understand the risks involved. These are market-sensitive, and while they may have the potential to earn profits, they may also have downside risks. Investors concerned about tiny short-term market changes should consider diversifying their investments. Despite market swings, investors who can stay invested in mid-cap funds for the long term can earn significant returns.
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Direct or Regular Plan:
These plans are offered directly by mutual fund companies. These do not necessitate the use of a third-party agent. As a result, direct plans have no additional commissions, resulting in a lower expense ratio. On the other hand, individuals can obtain regular plans via intermediaries such as brokers, directors, and so on.
Best Mid Cap Funds
In the market, there are a no. of mid-cap funds available. However, the most important thing is to choose the right fund. Here are some of the best mid-cap funds with a track record of high growth:-
Quant Mid Cap Fund
- Quant Mid Cap Fund Direct-Growth is a modest fund in its category, with 511 Crores in assets under management (AUM) as of 30/06/2022. Most of the fund’s assets are invested in the Services, Financial, Consumer Staples, Energy, and Communication sectors. It has less exposure to the Services and Financial sectors than other funds in the category. Patanjali Foods Ltd., Indian Hotels Co. Ltd., Canara Bank, Tata Communications Ltd., and Container Corpn. Of India, Ltd. is the fund’s top five holdings. The expense ratio for a quant mid-size fund is 0.63% (Inclusive of GST). Exit load: 0.50% if redeemed within 3 months.
- Minimum Investment – Rs 5,000/-
- Fund’s Performance – The last one-year returns on Quant Mid Cap Fund Direct-Growth are 9.09 percent. It has provided 15.78% average yearly returns since its inception. Every two years, the fund has quadrupled the amount invested in it.
Axis Mid-Cap Fund
- Axis Midcap Direct Plan-Growth has assets under management (AUM) of 17,165 Crores as of 30/06/2022 and is a medium-sized fund in its category. Most of the fund’s assets are invested in the financial, technology, services, materials, and consumer discretionary sectors. It has less exposure to the financial and technology industries than other funds in the category. Cholamandalam Investment & Finance Co. Ltd., ICICI Bank Ltd., Trent Ltd., Bajaj Finance Ltd., and Avenue Supermarts Ltd. are the fund’s top five holdings. The expense ratio for Axis mid-cap fund is 0.47% (Inclusive of GST). The fund has an exit load for units over 10% of the investment, 1% will be charged for redemption within 12 months.
- Minimum Investment – Rs 5,000/-
- Fund’s Performance – Axis Midcap Direct Plan’s 1-year growth returns are 1.33%. It has earned 18.54% average yearly returns since its inception. Every three years, the fund has doubled the amount invested in it.
Baroda Mid-Cap
- As of 30/06/2022, Baroda BNP Paribas Midcap Direct-Growth’s assets under management (AUM) stood at 1,116 crores, making it a medium-sized fund in its category. Most of the fund’s assets are invested in the financial, automobile, energy, technology, metals, and mining industries. It has less exposure to the financial and automotive sectors than other funds in the category. Trent Ltd., Voltas Ltd., Jindal Steel & Power Ltd., Procter & Gamble Hygiene & Health Care Ltd., and TVS Motor Co. Ltd. are the fund’s top five holdings. The fund has an expense ratio of 1.55% (Inclusive of GST). Further, the exit load of the fund is 1% if redeemed within 365 days
- Minimum Investment – Rs 5,000/-
- Fund’s Performance – Baroda BNP Paribas Midcap Direct-Growth returns are 1.36% over the last year. It has earned 18.16% average yearly returns since its inception. Every three years, the fund has doubled the amount invested in it.
Kotak Emerging Equity Fund
- Kotak Emerging Equity Fund Direct-Growth has an AUM of 18,655 Crores as of 30/06/2022 and is a medium-sized fund in its category. Most of the fund’s assets are invested in the Capital Goods, Consumer Discretionary, Financials, Chemicals, and Materials sectors. It has less exposure to the Capital Goods and Consumer Discretionary sectors than other funds in the category. The fund’s top five holdings are Schaeffler India Ltd., Supreme Industries Ltd., Persistent Systems Ltd., Coromandel International Ltd., and Thermax Ltd. The expense ratio of the fund is 0.48% (Inclusive of GST). Further, the fund has an exit load for units over 10% of the investment, 1% will be charged for redemption within 365 days
- Minimum Investment – Rs 5,000/-
- Fund’s Performance – The 1-year returns for Kotak Emerging Equity Fund Direct-Growth are 3.72%. Since its inception, it has had an average yearly return of 19.30%. Every three years, the fund has doubled the amount invested in it.
UTI Mid-Cap Fund
- UTI Mid Cap Fund Direct-Growth has assets under management (AUM) of 6,373 Crores as of 30/06/2022 and is a medium-sized fund in its category. Most of the fund’s assets are invested in the financial, automobile, healthcare, capital goods, and materials industries. It has less exposure to the financial and automotive sectors than other funds in the category. Cholamandalam Investment & Finance Co. Ltd., TI Financial Holdings Ltd., PI Industries Ltd., Mphasis Ltd., and Shriram Transport Finance Co. Ltd. are the fund’s top five holdings. The fund has an expense ratio of 0.98% (Inclusive of GST). Further, there is an exit load of 1% if redeemed less than one year
- Minimum Investment – Rs 5,000/-
- Fund’s Performance – UTI Mid Cap Fund Direct-Growth returns of the last 1-year are 2.85%. It has provided 18% average yearly returns since its inception. Every three years, the fund has doubled the amount invested in it.
HDFC Mid Cap Opportunities Fund
- HDFC Mid-Cap Opportunities Direct Plan-Growth has assets under management (AUM) of 30,341 Crores as of 30/06/2022 and is a medium-sized fund in its category. Most of the fund’s assets are invested in the financial, capital goods, healthcare, chemicals, and services sectors. It has less exposure to the Financial and Capital Goods sectors than other funds in the category. Cholamandalam Investment & Finance Co. Ltd., Bharat Electronics Ltd., Hindustan Aeronautics Ltd., Indian Hotels Co. Ltd., and Max Healthcare Institute Ltd. are the fund’s top five holdings. The fund has an Expense ratio of 1.01% (Inclusive of GST). Further, there is an exit load of 1% if redeemed within one year
- Minimum Investment – Rs 5,000/-
- Fund’s Performance – HDFC Mid-Cap Opportunities Direct Plan-Growth returns are 3.29% over the last year. It has provided 18.26% average yearly returns since its inception. Every three years, the fund has doubled the amount invested in it.
SBI Magnum Midcap Fund
- SBI Magnum Mid Cap Direct Plan-Growth has assets under management (AUM) of 6,891 Crores as of 30/06/2022 and is a medium-sized fund in its category. Most of the fund’s assets are invested in the automobile, capital goods, financial, textile, and chemical sectors. It has less exposure to the Automobile and Capital Goods sectors than other funds in the category. Page Industries Ltd., Sheela Foam Ltd., TI Financial Holdings Ltd., Schaeffler India Ltd., and Crisil Ltd. are the fund’s top five holdings. The fund has an Expense ratio: of 1.03% (Inclusive of GST). Further, there is an exit load of 1% if redeemed within one year
- Minimum Investment – Rs 5,000/-
- Fund’s Performance – SBI Magnum Mid Cap Direct Plan’s 1-year growth returns are 10.48 percent. It has provided 18.94 percent average yearly returns since its inception. Every two years, the fund has quadrupled the amount invested in it.
Nippon India Growth Fund
- Nippon India Growth Fund Direct-Growth has assets under management (AUM) of 11,268 Crores as of 30/06/2022 and is a medium-sized fund in its category. Most of the fund’s assets are invested in the financial, services, healthcare, capital goods, and automobile sectors. It has less exposure to the Financial and Services sectors than other funds in the category. Varun Beverages Ltd., Tube Investments of India Ltd., Max Financial Services Ltd., Federal Bank Ltd., and AU Small Finance Bank Ltd. are the fund’s top five holdings. The fund has an expense ratio of 1.22% (Inclusive of GST). Further, there is an exit load of 1% if redeemed within one year.
- Minimum Investment – Rs 100/-
- Fund’s Performance – Nippon India Growth Fund Direct’s 1-year growth returns are 7.26 percent. It has provided 15.69 percent average yearly returns since its inception. Every three years, the fund has doubled the amount invested in it.
PGIM India Mid-Cap Opportunities Fund
- As of 30/06/2022, the assets under management (AUM) of PGIM India Midcap Opportunities Fund Direct-Growth were at 5,119 crores, making it a medium-sized fund in its category. Most of the fund’s assets are invested in the Capital Goods, Financial, Automobile, Healthcare, and Materials sectors. It has less exposure in the Capital Goods and Financial sectors than other funds in the category. The fund’s top five holdings are ABB Ltd., HDFC Bank Ltd., TVS Motor Co. Ltd., Timken India Ltd., and Persistent Systems Ltd. The expense ratio of the fund is 0.45% (Inclusive of GST). Further, there is an exit load of 0.5% if redeemed within 90 days
- Minimum Investment – Rs 5,000/-
- Fund’s Performance – The 1-year returns on PGIM India Midcap Opportunities Fund Direct-Growth are 9.04 percent. It has earned 18.82 percent average yearly returns since its inception. Every two years, the fund has quadrupled the amount invested in it.
Edelweiss Mid-Cap Fund
- Edelweiss Mid Cap Direct Plan-Growth is a medium-sized fund with 1,918 Crores in assets under management (AUM) as of 30/06/2022. Most of the fund’s assets are invested in the financial, capital goods, chemicals, automobile, and healthcare industries. It has less exposure to the Financial and Capital Goods sectors than other funds in the category. The fund’s top five holdings are ABB Ltd., Cholamandalam Investment & Finance Co. Ltd., Navin Fluorine International Ltd., Crompton Greaves Consumer Electricals Ltd., and Tata Power Co. Ltd. Expense ratio of the fund is 0.57% (Inclusive of GST). Further, there is an exit load of 1% if redeemed within 12 months
- Minimum Investment – Rs 5,000/-
- Fund’s Performance – Edelweiss Mid Cap Direct Plan’s 1-year growth returns are 2.92 percent. It has earned 19.86 percent average yearly returns since its inception. Every three years, the fund has doubled the amount invested in it.
Frequently Asked Questions
Mid Cap Funds typically outperform the market in terms of long-term returns. However, they may underperform in short to medium term. Investors must be willing to stay involved if they wish to benefit from this fund type.
Mid Cap Mutual Funds invest in equities, which can be volatile soon. However, the risk decreases significantly over time.
Mid-cap schemes, as the name implies, invest in mid-sized enterprises. SEBI requires mid-cap plans to invest in firms with market capitalizations ranging from 101 to 250.
Companies with a market capitalization between 5000 to 20000 Crores are known as mid-cap companies.
Mid-cap funds are a two-edged sword. They can increase in size and make profits, or they might contract. This is why the best time to invest in mid-cap funds is when market circumstances are predicted to improve and the investor is willing to hold the investment for a long time to profit from long-term benefits.
These are market-sensitive, and while they may have the potential to earn profits, they may also have downside risks. Investors concerned about tiny short-term market changes should consider diversifying their investments. Despite market swings, investors who can stay invested in mid-cap funds for the long term can earn significant returns.
Mid-cap stocks are slightly riskier than large-cap stocks but slightly safer than small-cap stocks. Small-cap stocks are riskier than large-cap ones. Despite the danger, these stocks have a high growth potential.
Large and Mid Cap Funds do not have a lock-in period. You are free to enter and exit at any moment.
Mid Mutual Funds are similar to other mutual funds. You don’t need much money to start investing here, either. You can begin with as little as Rs. 500 in SIPs.