Written by CA Pankaj Chhabra – 
& Megha Jain –
Do you want to invest in companies that have proven financial performance but still have room for growth? Mid-cap funds are the way to go!
Mid-cap funds are a popular investment option for those looking to diversify their portfolio and gain exposure to companies with a track record of strong growth.
These funds invest in companies that rank between 101-250 in terms of market capitalization. These companies are generally considered to be more established and financially stable than small-cap companies, but with more growth potential than large-cap companies.
To read more about basics of Mutual Fund.
What is a Mid Cap Mutual Fund?
Mid-cap funds are equity funds that invest at least 65% of their assets in companies ranking between 101-250 in market capitalization.
These companies are typically in the growth phase of their business cycle and have the potential for higher returns, but also carry higher risk.
Basically, mid-cap companies have stability similar to large-cap companies and growth potential of small-cap companies – the perfect combination for your portfolio.
TOP 10 MID CAP MUTUAL FUNDS
List of funds as per the past 3 year and 5 year returns:
| Ranking | Mutual funds | 5 Year return | 3 Year return | |||
| 1 | Mirae Asset Midcap Fund – Regular -G | – | 22.29% | |||
| 2 | Nippon India Growth-G | 12.08% | 21.35% | |||
| 3 | SBI Magnum Mid Cap Fund – G | 10.61% | 24.59% | |||
| 4 | Kotak Emerging Equity Scheme – Growth | 12.40% | 20.99% | |||
| 5 | Baroda BNP Paribas Mid Cap Fund – Direct Plan – Growth | 11.14% | 20.75% | |||
| 6 | PGIM India Midcap Opportunities Fund – Regular Plan – G | 15.47% | 30.62% | |||
| 7 | Quant Mid Cap Fund-G | 18.91% | 34.13 | |||
| 8 | Motilal Oswal Midcap Fund – Direct Plan- Growth | 14.70% | 23.67% | |||
| 9 | UTI Mid Cap Fund – G | 9.51% | 20.78% | |||
| 10 | DSP Mid Cap Fund – Regular Plan – G | 7.77% | 12.52% | |||
Who should invest in Mid Cap Funds?
- Investors with a moderate to high risk tolerance
Mid-cap companies are generally financially stable than small-cap companies. But they still carry more risk than large-cap companies. Hence, these funds are more suitable for investors willing to take on more risk in exchange for the potential for higher returns.
- Investors looking for diversification
Mid-cap funds provide diversification, as the fund invests in a number of different companies, reducing the risk of any single stock or sector.
- Investors with a long-term investment horizon
Mid-cap companies are typically in the growth phase of their business cycle. Therefore, they may be suitable for investors with a long-term investment horizon who are willing to hold onto their investments for a longer period of time.
It’s worth noting that every investor’s financial situation is unique. Therefore, it’s always advisable to consult with a financial advisor before making any investment decisions.
Difference between Large Cap Funds, Mid Cap Funds, and Small Cap Funds?
| Basis of Difference | Large cap funds | Mid cap funds | Small cap funds |
| Approach of investment | Invest in large cap companies- companies with rank 1-100 in terms of market capitalization | Invest in mid-sized companies- companies that rank between 101-250 in terms of market capitalization | Invest in small-sized companies- companies with rank above 250 in terms of market capitalization |
| Risk | Low | High | Very high |
| Probability of exceptionally high returns | Low | High | High |
| Liquidity | Very high | High | Low |
| Ideal for | Investors seeking stable and consistent returns with less risk over long term | Investors seeking superior returns in long-term with greater risk proportion than long-term funds | Investors with high-risk appetite who seeks superior return in medium to long-term horizon |
How to start investing online in Mid Cap Funds?
- STEP 1- Download the SPA Capital App (Available on Android & Apple Store)
- STEP 2- Create your profile
- STEP 3- Select any Mid Cap fund from the list of Funds
- STEP 4- Choose between SIP or Lump sum mode
- STEP 5- Complete the payment process
Factors to be considered while investing in Mid Cap Funds
Investment goal: Not all investors will have the same financial goal. Therefore, it is crucial to understand one’s investment objective before allocating savings to the best mid-cap mutual funds.
Risk tolerance: Before investing in mid-cap mutual funds, investors must evaluate the level of risk they are willing to take. Since market volatilities significantly impact their returns.
Expense ratio: The fees and expenses associated of the fund such as sales, marketing, administrative expenses, transaction costs etc. are collectively referred to as ‘Expense Ratio.’ Look for a fund with a low expense ratio and avoid funds with high sales charges or loads.
Exit load – Exit load is a fee charged by the AMCs at the time of exiting or retrieving the units of the fund prior to a specific period. Exit load takes away a fraction of your net asset value (NAV). Hence, lower exit load translates into higher returns.
Past performance of the fund: It is important to compare the fund’s performance to its benchmark index and to other similar funds in the category. It can help investors understand the fund’s volatility, consistency, strengths and weaknesses, and investment style.
Experience of the fund manager: Fund Manager’s expertise and experience play an important role in making or breaking an investment plan in the long run. Therefore, it is always a good idea to research the fund’s management team and their experience in managing mid-cap funds to ensure better returns.
Taxability of Returns from Mid Cap Funds
The taxation on returns from mid-cap funds is similar to any other type of equity fund.
Short term capital gains (STCG) – Gains from the sale of shares held for less than one year are called short-term capital gains. These are subject to 15% taxation, irrespective of your tax slab.
Long-term capital gains (LTCG) – Gains from the sale of shares held for more than a year, are tax free up to the threshold limit of Rs. 1 lakh and are taxed 10% if the gains exceed the threshold limit in a financial year.
Dividend – The dividends offered by mutual funds were made tax-free in the hand of investors until 2020. But after the amendments made in the Union Budget 2020, the dividends offered are added to the overall income and are taxed as per the income tax slab you fall under.
| Particulars | Holding period | Taxation |
| STCG
(Short-term capital gain) |
<1 year |
15% on your gain irrespective of your tax slab + Cess + Surcharge if applicable |
| LTCG
(Long-term capital gain) |
>1 year |
10% (Only if gains exceed a threshold of Rs. 1Lakh in a financial year) + Cess + Surcharge if applicable |
| Dividend offered by mutual funds | Added to overall income and taxed as per the income tax slab |
Advantages of investing in mid-cap funds
- Growth potential – Mid-sized companies often have more room to grow than larger, more established companies, which can lead to higher potential returns for investors.
- Diversification – Mid-cap funds offer diversification beyond large-cap funds, which can help to reduce overall portfolio risk.
- Less volatility – Mid-cap stocks tend to be less volatile than small-cap stocks.
- Low investment amount – They do not require large investment amounts. Investing can be done either through SIP or lump sum. Therefore, investors can start investing in mid cap funds with as low as Rs. 500.
- Liquidity – Offer more liquidity as compared to small-cap funds.
FREQUENTLY ASKED QUESTIONS
- What are mid cap funds?
Stocks falling in the rage of 101-250 in terms of market capitalization.
- How are mid cap funds taxed?
Short-term capital gains (stocks hold for less than 1 year) are taxed 15% irrespective of your income tax slab.
Long-term capital gains (stocks hold for more than 1 year) are taxed 10% if the gains exceed the threshold amount of Rs. 1lakh.
- What are the expected returns of mid cap funds?
In long-term they tend to outperform large-cap funds.
- Where do mid cap funds invest?
Primarily invest in companies ranking 101-250 in terms of market capitalization.
- Who should invest in mid cap funds?
Suitable for investors having the appetite for taking higher risks and have long investment horizon.
- What is the lock-in period for mid cap funds?
There is no lock-in period for mid cap funds. One can buy and sell as and when they wish to.
- What are the risks involved in investing in mid cap funds?
Mid-cap funds invest in mid-sized Indian companies, while they have higher risk than large-cap funds but are less risky than small-cap funds.
