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What are Mid-Cap Funds?
Mid-cap funds invest in mid-sized companies with a market capitalisation in the middle range of listed stocks. This typically means companies with a market cap between Rs 5,000 crore and Rs 20,000 crore. Mid-cap companies often have higher growth potential than large-cap companies but also carry more risk. As a result, mid-cap funds can be more volatile than large-cap funds, but they also have the potential for higher returns.
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Monthly Investment
₹22.4 L
Top Funds with High Returns (Past 7 Years)
19.3%
High Growth Fund
15.61%
Accelerator Mid-Cap Fund II
15.48%
Opportunities Fund
What are the Advantages of Mid-Cap Funds?
Here are some of the advantages of investing in mid-cap funds in India:
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Higher growth potential: Mid-cap companies are often in high-growth industries, such as technology, healthcare, and consumer goods. This means that they have the potential to grow their earnings at a faster rate than large-cap companies. It is suggested to explore the best SIP plans for mid-cap fund investments.
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Lower valuation: Mid-cap companies are often less expensive than large-cap companies, which means that you can buy them at a discount to their real value.
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Diversification: Investing in a mid-cap fund can help you diversify your portfolio and reduce your overall risk.
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How Do Mid-Cap Funds Work?
Every fund, regardless of its nature, is built upon an underlying asset that generates returns. In the case of mid-cap funds, this underlying asset comprises the stocks of mid-sized companies. Investors invest their money in mid-cap funds, which, in turn, are managed by professionals who use these funds to purchase stocks of companies falling within the mid-cap category. The rationale behind this strategy lies in the potential of mid-sized companies to yield favourable returns over the long term.
Mid-cap companies, as classified by market capitalisation or market value, are positioned between large-cap and small-cap companies. According to guidelines set by the Securities and Exchange Board of India (SEBI), companies ranked between 101-250 based on their market capitalization are categorized as mid-cap companies. These entities, which may not be as substantial as large-cap corporations, are more established and have outgrown their small-cap counterparts. Some examples of mid-sized companies include well-known names such as Tata Communication, Hindustan Petroleum Corporation Ltd, and LIC Housing Finance Ltd.
During periods of economic growth, mid-sized companies often experience faster rates of expansion compared to large-cap or blue-chip companies. However, it is important to recognize that during economic slowdowns, mid-cap companies may be more vulnerable to adverse effects. This inherent volatility is a characteristic that investors should consider when evaluating mid-cap funds as part of their investment portfolio.
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Who Should Invest in Mid-Cap Funds?
Mid-cap funds aren't suitable for everyone, but they can be a good fit for certain investors depending on their risk tolerance, financial goals, and investment timeline. Here's a list of who should consider investing in mid-cap funds:
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Moderate to high-risk appetite: Mid-cap funds experience higher volatility than large-cap funds, meaning your investment value can fluctuate significantly. You should be comfortable with these fluctuations and have a long-term horizon to ride out market downturns.
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Long-term investment horizon: Aim for at least 5-7 years, ideally 10+ years, to allow mid-cap companies time to grow and potentially deliver higher returns. Short-term goals are not suited for these funds due to their volatility.
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Seeking higher growth potential: Mid-cap companies often operate in high-growth industries and can outperform large-caps over the long term. If you're looking for larger potential returns compared to large-cap funds, mid-caps can be a good option.
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Diversification: Mid-cap funds can add diversification to a portfolio containing large-cap funds, reducing overall risk by spreading investments across different market segments.
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Younger investors: Younger investors typically have a longer investment horizon and can weather market volatility better than older investors nearing retirement.
What are the Taxation Rules on Mid-Cap Funds?
Taxation on mid-cap funds in India depends on the holding period: the time you hold the investment before selling it. Here's a breakdown:
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Short-term capital gains (STCG):
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Holding period less than 1 year
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Taxed at 15% (plus applicable cess & surcharge)
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Applicable to any profit earned on selling units within 1 year of purchase
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Long-term capital gains (LTCG):
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Holding a period of 1 year or more
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Taxed at 10% (plus applicable cess & surcharge) on gains exceeding Rs. 1 lakh per year
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No tax on LTCG up to Rs. 1 lakh per year
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Indexation benefits not available for mid-cap or large-cap funds after July 1, 2014
How to Invest in Mid-Cap Funds?
Investing in mid-cap funds through Policybazaar Money is a straightforward process. Here's a simple guide to get you started:
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Create an account on Policybazaar’s website by providing basic details and completing KYC verification.
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Research and compare different Mid-Cap Funds based on past performance, expense ratio, investment strategy, and fund manager's experience.
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Policybazaar offers a comparison tool for funds, which can be a starting point for your research.
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Once you've chosen a fund, you can invest through a lump sum payment or set up a regular SIP investment.
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Monitor your investment performance regularly through the platform's dashboard.
