Mid cap Mutual Funds

Mid-cap funds refer to a type of equity mutual funds. Mid-cap schemes invest in companies whose market capitalisation falls in between that of large-cap and small-cap companies. Stocks and other equity-linked securities of such firms can help you build wealth in the long term. 


However, be aware of the fact that mid-cap mutual funds do require a higher risk appetite. The best way for you to benefit from investing in mid-cap equity funds is by choosing a longer timeline. Experts suggest staying invested for at least 7 to 8 years to generate good returns. 

Now that you know what the mid-cap fund meaning is, you can take the right call about investing in such schemes. Read on to know more about the features, benefits and other considerations of mid-cap funds.

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Features of Mid-cap Funds

Equity mutual funds, in general, require you to invest for a longer period and take on some risk to earn exciting returns. Mid-cap funds are equity funds that fall in the middle of the risk and return calculation.


They are riskier as compared to large-cap funds and less risky as compared to small-cap funds. They also have the potential to beat the returns offered by large-cap funds but less than the gains that small-cap funds have the potential to offer. 


As per the guidelines set out by the Securities and Exchange Board of India (SEBI), mid-cap equity funds need to invest at least 65% of the corpus in mid-cap stocks. These stocks belong to listed companies with a market capitalisation ranked from 101 and 250.


Here are a few characteristics that define mid-cap mutual funds:


  • Mid-cap companies whose shares and equity-related securities mid-cap schemes invest in have the potential to offer a high payout

  • Mid-cap companies of today may be large-cap companies of tomorrow, so you can plan a long-term investment 

  • Since mid-cap companies have a high growth potential, they may offer higher returns that beat benchmarks as compared to large-cap schemes 

  • Your risk tolerance needs to be high as mid-cap companies may falter during recessions or leans periods

  • Mid-cap schemes may also cause sudden increases and decreases in your portfolio over the short and medium term as mid-cap companies are not as stable 

  • Selling your investment in mid-cap schemes in less than 1 year attracts short term capital gains tax at 15% 

  • Selling your investment after 1 year attracts long term capital gains tax at 10% only if gains go beyond ₹1 Lakh 

  • Mid-cap schemes can help you diversify your portfolio, especially as a young investor with a high risk appetite 

  • Dividends you earn from these funds are taxed as per your tax slab; TDS will be applied if their total is higher than ₹5,000

Benefits of Investing in Mid-cap Equity Funds

Mid-cap mutual funds offer investors multiple advantages. Here are some of them:


  • Ability to Generate Wealth


As an investor, you have the ability to maximise your profits with mid-cap funds. Top fund managers choose well-known stocks with a high promise of growth to increase your wealth-building potential. Mid-cap schemes can even surpass gains from large-cap funds. 


A simple way to mitigate your risk when you invest in such schemes is to lengthen your investment duration to about 10 years. This gives mid cap companies the time they need to stabilise operations and counter slowdowns. 


  • Open-ended Nature Boosts Liquidity 


Mid-cap funds are open ended, which means you can redeem them with ease. Simply check the net asset value (NAV) at the time you plan to sell your investment and proceed to do so online. 


Since mid-cap mutual funds do not have a lock-period you have to adhere to, they offer high liquidity. 


  • Do Not Require a Large Corpus 


Mid-cap funds allow you to get started with a pocket-friendly investment amount. This way, you do not need a large corpus to begin your investment journey. You can invest just ₹500; however, the best way to go about it is via SIPs. 


  • Help Build a Diversified Portfolio


Investing in mid-cap equity funds can help you create a diversified investment portfolio. Fund managers invest in shares of different mid-cap companies spanning multiple industries. This allows you to benefit from gains and makes you less susceptible to losses. 


Overall, you can enjoy good returns over time when you choose mid-cap schemes. Since your profitability is linked to the types of stocks chosen, make sure you choose a scheme handled by experienced fund managers. 


After all, market research and analysis help increase your potential of earning the best returns! 


However, also keep in mind that your gains in these schemes will be higher during upturns as opposed to slumps. Additionally, keep an eye on the expense ratio for these funds as they do require reallocation.

Key Parameters to Consider When Investing in Mid-cap

Here are 5 important factors you can give some thought to when choosing whether to invest in mid-cap funds. 


  • Returns and Performance Over Time 


Taking a historic view of the returns these schemes have generated is important. This is because such schemes may offer high returns in the long term and lower in the short term. In addition, the scheme’s performance during bullish and bearish markets may be very different.


So, look at gains of least 5 years in the past and assess the returns against the benchmark. This will help you choose the ideal scheme that matches or exceeds it. It will also help you understand the right time to start and redeem your investment. 


  • Cost of Investing via the Expense Ratio


The expense ratio helps cover the cost of managing the scheme and is a percentage of the fund’s total assets. While SEBI has capped the expense ratio for all mutual fund schemes to 2.50%, you can look for the lowest one. This helps you maximise your gains. 


  • Impact on Your Taxes


Since your earnings from mid-cap funds are taxable, account for them during financial planning. As explained above, short term capital gains are taxed at 15% and long term capital gains at 10%. This only applies if your profits cross ₹1 Lakh. 


TDS and tax are also applicable to income from dividends. Based on these parameters, you can plan your investment horizon better and choose the right type of mid-cap scheme. 


  • Your Goals and Age


Since it is best to invest in mid-cap funds for the long haul, match them to your long-term goals. These may include buying a home, your child’s higher education or marriage and more. By knowing what you are investing for, you can benefit from mid-cap schemes over time. 


In this scenario, make sure you factor in your age and obligations. As a young investor, you are likely to have fewer responsibilities and can take on higher risk. This is an ideal time to invest in mid-cap equity funds. 


  • Risk-taking Ability and Timeline 


You already know that mid-cap funds may fluctuate quite a bit during volatile markets and in the short term. This is why planning your investment based on your ability to handle risk is important. 


Make sure you are not inclined to take reckless decisions and only then invest in mid-cap mutual funds. Connected to this is the investment horizon you choose. Select these schemes only if you are comfortable with about 10 years before you redeem your investment. 


With these tips, you can choose the best mid-cap mutual funds and make a wise investment decision. On Bajaj Markets, you can find the right schemes by checking their rating and annualised returns for the past 5 years. 


You can also see who the fund managers are and invest directly in all mutual fund schemes with zero commission and low expense ratios.

FAQs on Mid-cap Mutual Funds

Who should invest in mid-cap funds?

You can invest in mid-cap funds if you are have a good risk tolerance and plan to invest for 7-10 years.

What are the risks associated with mid-cap mutual funds?

What are some of the best mid-cap mutual funds in India?

What are the various taxes applied on mid-cap mutual funds?


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