Everything You Need to Know about Mid-Cap Funds

There are different types of mutual funds available in the market. Based on your investment amount and risk appetite, you can choose from the funds and invest in the one that fits your needs. One such investment option in mutual funds is mid-cap funds.

What is a mid-cap fund?

Mid-cap funds are the funds that invest only in mid-size companies. These companies have a market capitalization of INR 500 to INR 10,000 crore. Mid-cap companies cover about 80 to 90% of the entire market cap in the stock market.

Why should you invest?

The fund managers invest into the stocks after thorough research and analysis. These funds have growth potential but require a long investment horizon. It also has low risk associated with the investment.

Who should invest?

Mid-cap funds are not an ideal investment for everyone. Investors who are trying to maximize the returns over a long horizon should choose to invest in the funds.

The funds carry a substantial amount of risk but it can also generate high returns over a longer period. Investors with a lot of time on hand and having the ability to tolerate risks due to market volatility should choose the fund.

Is there any tax liability?

The funds invest into equity stocks wherein there will be a tax liability on the capital gains generated by the sale of the stock. The short-term capital gain will be taxable at the rate of 15% and long-term capital gain will be taxable at the rate of 10%, on any amount exceeding INR 1 lakh, in a financial year.

Things to consider while investing

Before investing in mid-cap funds, you need to consider the investment horizon. The fund shows significant results in the long term.

In addition, you also need to consider the performance of the fund. Analyze the returns generated in the past and make your decision. If it is a new fund, pick an experienced fund manager for better returns.

How should you select a mid-cap fund?

In order to select a fund to invest in, you need to shortlist the best funds available in the market. Compare the performance of the funds and the expected returns on a yearly basis. You can make the comparison of the funds with the respective indices to get a better idea about its performance.

What are the best mid-cap funds?

We have listed down few of the best mid-cap funds that you can think about investing. For more details, set-up your account and talk to our financial advisor today:

• Axis Mid Cap Fund Growth
• HDFC Mid Cap Opportunities Fund Growth
• Reliance Growth Fund Growth
• Tata Mid Cap Growth Fund Growth
• Edelweiss Mid Cap Fund Growth

Comparison with small and large-cap funds

Large-cap funds are more stable in terms of price movements. Hence, they carry low risk and generate high returns.

On the other hand, in the case of mid-cap funds, the companies, which are volatile, the returns will also vary as per the market movement and the risk will be higher than that of a large cap and lower than that of a small cap.

Lastly, small-cap funds have the highest amount of risk associated with the investment but they also have the ability to generate high returns as compared to large-cap funds.

You should choose a fund based on your purpose of investment and the risk appetite.

Common mutual funds investment mistakes

To ensure the investments you make help you toward a financially secure future, you must avoid certain investment mistakes that a lot of newcomers end up making. Mistakes such as:

Not Having Financial Goals:

Not having a financial goal in mind is probably the biggest mistake an investor makes while investing. If you are not clear about the outcome you want, you will end up taking a decision that will do more harm. Investing without creating a goal is similar to travelling without having a destination in mind.

Investing in too many Schemes:

If you are just out or an avid investor, investing in too many schemes at the same time is always considered too risky. A lot of people forget that each fund scheme has a diversified portfolio and that if they invest in too many MF schemes, it will become difficult to keep track of them. The best method is to select 2 or 3 MF schemes and build that investment over a period as per your financial goals.

To read the entire list of common mistakes that you should avoid, check out 10 mistakes to avoid while investing in mutual funds.

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