Mid Cap Mutual Funds

Mid-cap mutual Funds enable you to invest in India’s fast growing companies with a market capitalisation in the range of Rs.5000 Cr to Rs.20000 Cr and a rank between 101 to 250. Mid-cap mutual fund companies (AMC’s) pool your money and invest in these mid-cap companies.

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List of Best Mid Cap Funds to Invest Today

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Who Should Invest in Mid Cap Funds?

Long-Term Investors
While mid-cap funds may experience volatility in the short term, they can deliver strong returns over a longer period because mid-cap companies can take time to grow requiring patience from investors. These funds are suitable for investors with a 5-7-year investment horizon.
Investors With High-Risk High-Return Mindset
Investors who are comfortable with a high level of risk and can handle market fluctuations might find mid-cap funds appealing. While these funds tend to be more volatile than large-cap funds, they also have the potential for higher returns.

Why Should You Invest in Mid Cap Funds?

High Return Potential
Mid-cap funds invest in companies that are often in an expansion phase. As a result, these funds have scope to offer higher returns compared to large-cap funds that invest in more mature companies.
Balanced Risk and Reward
Mid-cap mutual funds have an attractive risk-return profile, as they offer growth scope that’s less risky than small-cap funds. These funds strike the right balance between higher volatility of small-cap stocks and relative stability of large-cap stocks.

Risks Involved With Investing In Mid Cap Funds

Higher Volatility
Mid-cap stocks can be more volatile than large-cap stocks. Their prices may fluctuate more dramatically due to factors like market conditions and company performance, leading to higher short-term risk.
Financial Stability
Mid-cap companies may not have the financial robustness of large-cap firms. Due to this mid-cap funds may see sharp falls during periods of economic downturn and underperform large-cap funds.
Liquidity Risks
Investments in mid-cap funds can face liquidity risks during market crashes, as it may be challenging to find buyers. This is because, during uncertain times, investors often prefer to stick with stable options like large-cap funds.

Taxation of Mid Cap Funds

Since taxes impact return on investment, it’s crucial to understand how mid-cap mutual funds are taxed. Returns from mid-cap mutual funds are classified as capital gains, with the tax rate depending on the holding period.

Short-term Capital Gains Tax
If you redeem your mid-cap funds in a year, these gains are known as short-term capital gains. They are taxed at 20%.
Long-term Capital Gains Tax
If you redeem your mid-cap mutual funds after a year, then gains are known as long-term capital gains. They attract a tax rate of 12.5% on gains over ₹1.25 lakh. You don’t have to pay any taxes on gains up to ₹1.25 lakh.

Frequently Asked Questions

A mid-cap fund invests in companies with a market capitalization typically between ₹5,000 crore and ₹20,000 crore. These companies are mid-sized i.e. bigger than small-cap stocks but not yet giants like the large-cap ones. They often strike a balance between growth potential and stability.

Mid-cap funds can be a good investment for investors as they offer higher stability than small-cap funds but better returns than large-cap funds especially when market conditions are favourable.

Mid-cap funds invest in companies that have a market capitalization between ₹5,000 crore and ₹20,000 crore. These companies are ranked between 101st to 250th on exchanges. On the other hand, large-cap funds invest in the top 100 companies, generally with a market capitalization of over ₹20,000 crore. Mid-cap funds have a higher growth scope than large-cap funds but at a higher risk.

A mid-cap fund invests in companies of medium size whereas a flexi-cap funds invest in companies of all sizes— large, mid and small. Mid-cap funds are suitable if you are seeking strong growth and have a longer investment horizon and high-risk appetite. However, if you are looking for more balanced growth, then you can consider flexi-cap funds as they are diversified and offer better stability.

Mid-cap funds often perform better when the economy is growing. In a bull market, mid-cap stocks can outperform larger companies due to their higher growth potential. However, they may be more volatile in downturns compared to large-cap stocks.

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