Mid-cap mutual funds have proven to be popular with investors over time as they can generate strong returns in the long term. More evidence supporting the sentiment is provided in recent data released by the Association of Mutual Funds in India (AMFI), which saw mid-cap funds registering growth of over 20 per cent in the assets under management in the past year. These funds tend to invest mainly in mid-cap stocks, companies ranked 101 to 250 by market capitalization, which makes up about 15 per cent of the total market capitalization of Indian equities. During bullish phases, mid-cap companies oftentimes outpace large caps in growth, which makes mid-cap mutual funds a tempting option for investors seeking portfolio diversification and improving returns with time.
Mid-Cap Mutual Funds: What Are They?
Mid-cap mutual funds mean an investment in a mid-cap company. According to regulation, mid-cap funds have to invest at least 65% of their total assets in mid-cap stocks. These companies are just in the expansion stage of their business cycle, which often means they would have a higher growth potential than large-cap firms. They are also less volatile than small-cap companies and thus come under moderately risky investment options.
Mid-cap funds are popular with investors who hope for big returns over the long term and are willing to ride out short-term market swings. These forms of funds fit very well for individuals who wish to raise their wealth using investing in corporations that have strong growth potential.
Advantages of Investing in Mid-Cap Mutual Funds
Growth Potential
Mid-cap companies are in a growth period; consequently, they are ideally positioned to grow and expand. This growth potential leads to larger returns for investors over time, particularly in favourable market conditions.
Diversification
Investing in mid-cap funds enhances one’s portfolio by injecting it with medium-sized companies occupied by different sectors. It diversifies risk to wide market segments, so dependency on large-cap corporations is decreased.
Better valuations
In comparison to large-cap equities, mid-cap stocks are often cheap. This allows investors to get into companies with good fundamentals at a lesser cost.
Balanced risk and reward
Mid-cap funds stabilise the safety of large-cap funds with the high-risk, high-reward nature of small-cap funds. This makes them appropriate for those that have a modest risk tolerance.
Factors to Consider Before Investing
Risk Appetite
Mid-cap mutual funds are vulnerable to market risks and might experience sharp price changes. Investors should assess their ability to handle short-term volatility.
Investment Horizon
These funds are best suited for long-term investors with a five- to ten-year investment horizon. The compounding effect over time reduces short-term market movements while maximising rewards.
Fund’s Performance
The past performance of the mutual fund and the track record of the fund manager should be considered of vital importance when it comes to evaluating mid-cap mutual funds. However, historical achievement should not be the sole consideration for selection.
Systematic Investment Plans (SIPs)
A Systematic Investment Plan (SIP) is one of the easiest ways to invest in mid-cap funds. Investors use a mutual fund’s SIP calculator to figure out how much money must be invested regularly to fulfil their financial goals. This is a handy tool to plan investments and figure out what to expect in returns to stay consistent with your payments.
Tax Implications:
Mid-cap mutual funds are liable to equity taxation laws. The returns are subject to a 15% short-term capital gains tax if it is held for less than a year. Long-term capital gains (LTCG) apply at 10% for yearly returns above ₹1 lakh for holdings over a year.
Conclusion
Mid-cap mutual funds are an attractive option for investors looking for a balance of growth and risk. While they necessitate an extended period of investment and moderate risk tolerance, the possibility for significant profits makes them an appealing option. Using tools such as the Mutual Funds SIP Calculator can assist in simplifying the investment process and reaching financial goals more efficiently.