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Mid-cap mutual funds are mutual funds that primarily invest in the shares of mid-cap companies (101st-250th largest companies in terms of market capitalization). Midcap funds feature the perfect blend of risk and returns as they invest in the stocks of companies which along with being responsive to stock market changes also holds a considerable amount of stability.
To bring diversification to a mutual fund portfolio in terms of balancing the risk, mid-cap funds are considered as the most preferred solutions as compared to small-cap funds (funds of companies which are in phase of resolving initial setup challenges) and large-cap funds (funds of companies which are very well established in the market and hence provide marginal rate of growth).
Mid-cap funds are less volatile as compared to small-cap funds and carry lower risk to return ratio. However, when compared to large-cap funds, mid-cap funds are more volatile and have a higher risk to return ratio.
To balance risk in your portfolio, it is generally advised that you choose a couple of mid-cap funds and invest in them for a longer duration so that their performance is realized at true value. The reason for the difference in returns between the best performing and average performing mid-cap funds is huge. You might let go of certain funds that are not performing well, but at the same time if you have a good number of mid-cap funds in your portfolio, then you can rely on better-performing funds and ultimately increase the realizable returns of your portfolio.
Advantages of Mid Cap Mutual Funds
- Mid-cap funds are less volatility than small-cap funds.
- Mid-cap funds offer more growth opportunities than large-cap funds.
- A mid-cap company offers more liquidity than a small-cap company.
Disadvantages of Mid Cap Mutual Funds
- These funds might hit hard during a bear market situation.
- During an economic crisis, larger, well-established companies tend to do better than mid-cap ones and provide a more stable, regular return.
- Mid-cap companies tend to have lower growth potential than smaller companies and hence provide fewer investment returns comparatively.
Best Mid-Cap Mutual Funds
| Fund Name | 1 Year | 3 Year | 5 Year |
|---|---|---|---|
| Kotak Emerging Equity Scheme | -3.02% | 7.24% | 14.22% |
| L&T Midcap Fund | -9.3% | 8.7% | 13.36% |
| Invesco India Midcap Fund | -5.02% | 7.21% | 11.02% |
| DSP Midcap Fund | -3.55% | 7.62% | 12.78% |
| HDFC Midcap Opportunities Fund | -9.04% | 6.62% | 11.7% |
Kotak Emerging Equity Scheme
Kotak Emerging Equity Scheme is one of the veterans mid-cap funds which has been in the space for more than a decade now. It is a well-performing scheme that has outperformed its benchmark(NIFTY Midcap 100 TRI) during both short and long term periods. It is a relatively aggressive mid-cap fund that has given minimal exposure to large-cap funds in its portfolio and has invested a majority of its assets in consumption-driven sectors.
L&T Midcap Fund
L&T Midcap Fund is a nearly 15-year-old fund that made its debut on August 2004. It is an ideal mid-cap fund for long-term periods of at least 5 years wherein it has given returns better than its benchmark(NIFTY Midcap 100 TRI). It follows an aggressive strategy in the allocation of its assets across both market capitalizations and sectors. This makes it fit for investors who have a moderate to high-risk appetite.
Invesco India Midcap Fund
Invesco India Midcap Fund has demonstrated an impressive performance track record since its inception in April 2007. The scheme has succeeded in outperforming its benchmark(NIFTY Midcap 100 TRI) in all the three above-mentioned tenures – 1 year, 3 years as well as 5 years. However, the scheme has a balanced approach in its asset allocation. This style of asset allocation helps it in featuring a moderately high-risk level.
DSP Midcap Fund
DSP Midcap Fund is an established midcap fund which was launched in November 2006. The scheme has given attractive returns over the last 3 and 5 years. It has given significant exposure to large caps (13%) in its portfolio. As far as the scheme’s allocation of assets across sectors is concerned, it is a little tilted towards the aggressive consumption-driven sectors to which it has allocated nearly 60% of its assets. The considerable large-cap inclusion helps the scheme in yielding consistent and stable returns.
HDFC Midcap Opportunities Fund
HDFC Midcap Opportunities Fund is a high-returns generating mid-cap fund that has been in the space for nearly 12 years now. The scheme has beaten its benchmark(NIFTY Midcap 100 TRI) by a good margin in both the last 3 year and 5 year periods. It is a relatively aggressive mid-cap fund that holds just 3% of its assets in large caps. In the sector-wise allocation of its assets also, the scheme has adopted an aggressive stance as it has invested a majority of its assets in consumption-driven sectors.
Conclusion
Investors who are looking for faster growth and high-risk appetite for risks compared to those of large-cap funds should invest in mid-cap funds. Investors who are ready to live with the volatility of these stocks in expectations of fascinating returns should go ahead with midcap funds.
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These funds have been shortlisted by undertaking certain parameters like NAV, past performances, peer average returns, etc. All the data is updated and is dated 19 July 2019.
