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According to SEBI, the companies ranking from 101 to 250 in terms of market capitalisation are called mid-cap companies or companies with medium-sized capitalization.
What are Mid Cap Funds?
Midcap equity funds are mutual funds that primarily invest in the shares of mid-cap companies. The companies lie between the 101st-250th largest companies in terms of market capitalization, as per the rules laid by SEBI. These 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 hold a considerable amount of stability.
It must be noted that the size of an organization is an important factor while deciding which company to invest in. This is because the risks and opportunities in your investments depend on the size of the company. Small cap funds, for example, are a rather risky investment because of the smaller size of the company. On the other hand, mid cap funds have the tendency to beat their benchmark when the markets are bullish.
List of the Best 5 Mid Cap Mutual Funds 2020
|Fund||1 Year Return||3 Year Return||5 Year Return|
|Kotak Emerging Equity Scheme||13.30%||10.57%||12.07%|
|L&T Midcap Fund||2.31%||9.17%||10.90%|
|Invesco India Midcap Fund||10.11%||11.71%||10.27%|
|DSP Midcap Fund||13.09%||10.41%||11.17%|
|HDFC Midcap Opportunities Fund||3.86%||6.92%||9.12%|
(Data as of December 10, 2019; Source: Value Research)
Who Should Invest in Mid Cap Funds?
Mid cap stocks are easily affected by the fluctuations in the market movements, whether bullish or bearish or spirals, upward or downward; implying that the prices and the NAV of the stocks are volatile. It is therefore, suggested that you invest in these funds only if you are entirely aware of the fund and its past performance.
- Mid cap companies tend to provide higher returns whilst being volatile on the stock index. If you have the appetite for the risk level, in order to earn returns you could opt to invest in these funds
- Investors of mid cap funds are suggested to have an investment horizon of a minimum of 7 to 10 years and not less
- Consider having a mix of funds in your portfolio (large cap, small cap, ELSS) if you are a new investor, rather than just relying on one mid-cap fund, if you want to invest in equity mutual funds
Advantages of Investing in Mid Cap Funds
Despite its high volatility, investors may consider investing in mid cap funds due to the following reasons-
- Higher returns in the long term
Staying in mid cap funds for a longer time period results in higher returns. If invested for a period of around 10 years, mid cap funds may even outperform large cap funds. Irrespective of their volatile nature.
- Increasing mid cap funds in the market
With the rise in the number of companies with medium-sized capitalization, the growth potential of mid cap funds is increasing. Quality mid cap companies possess a higher growth potential, thereby increasing the market share of mid cap funds. This results in rising growth volumes, higher NAV and profit margins for the investors.
Points to be Considered Before Investing
Before you make the choice of investing in mid cap funds, here’s what you should know –
- According to SEBI mandate, mid cap schemes are mandate to invest in at least 35% of the corpus in mid cap stocks.
- If you decide to invest in mid cap funds, you must be patient enough to stay invested in them for a long term (ideally 5-10 years).
- Previously, the fund managers had the liberty to switch from mid cap stocks to large cap stocks based on market conditions and their outlook. However, as per the new regulations by SEBI, the scheme must maintain the mandated limit of of at least 65% mid cap stocks, thereby making the scheme more risky.
- If you are thinking of investing in mid cap stocks, you are advised to study the historical performance of the fund. Short-term performance will not give you relevant insight, leaving you without any predictions of how the scheme will perform in the long term.
Risk Involved in Mid Cap Funds
Investors have a perception that investing in mid cap funds adds to the portfolio risk, which makes them reluctant in investing in mid cap funds. As much as the perception can be held true, there are chances that risk involved in mid cap investments gets reversed in the long term.
The risk involved in mid cap investments depends on multiple factors, one of which is size. Smaller size of the companies (compared to large cap ones) increases the risk involved. However, on the other hand, the market share of companies with smaller market capitalization is increasing, resulting in strong earnings growth and possibility of valuation re-rating.
Additionally, when the economy is reviving, mid cap funds outperform large cap funds, thereby adding to the chances of gaining higher returns from the investments. This could be the case in the coming future for the Indian landscape.
Taxation on Mid Cap Mutual Funds
The returns generated from investments made in mid cap funds are eligible for Short Term Capital Gains Tax at 15% if redeemed before a year. However, after 1 year, you will be liable to pay Long Term Capital Gains Tax of 10% on returns of more than Rs. 1 lakh in a financial year.
How to Invest in Mid Cap Funds?
- Sign Up/Sign In to Paisabazaar.com and go to ‘Direct Funds’
- Click on the section of ‘Mid Cap Funds’
- Select the fund in which you want to invest and look at the details. You can also compare similar schemes as well as use SIP Calculator or Lumpsum Calculator to estimate the future value of your investment
- Click on ‘Invest Now’, select either Lump sum or SIP
Why Choose Paisabazaar.com?
- Trusted website, no commission charges and no paperwork
- You can compare more than 1,700 Funds at one platform instead of visiting the website of each AMC and then searching for numerous funds
- Easy to browse as Funds are segregated under Equity, Debt, Large Cap, ELSS, etc. You can further add filters of ratings, returns, fund houses
- Important scheme details such as latest Net Asset Value (NAV), expense ratio, assets under management, etc are also available on the portal, making it easier for consumers to pick a suitable fund
Frequently Asked Questions
Q. What is Net Asset Value (NAV) of a scheme?
Ans. Net Asset Value or NAV of a scheme is the remaining value of a mutual fund scheme’s assets after deducting the value of its liabilities per unit. It is basically referred to as the price at which you buy the unit of a scheme.
Q. What is an Exit Load?
Ans. Exit Load is referred to the cost that an investor must bear upon selling the units of his funds before the completion of one year. Generally, equity mutual fund schemes have an exit load of 1% if redeemed within 1 year of buying the units of a fund. Some Equity funds belong to ELSS category which have a lock-in period of three years for each SIP. It is not possible to redeem your investment before this and hence an exit load applicable during redemption.
Q. What is Expense Ratio?
Ans. The Expense Ratio of a stock is referred to the total percentage of the fund’s assets used for expenses such as administration, management, advertising, etc. Equity mutual funds, typically, have an Expense Ratio of around 1% implying that every year, 1% of the fund’s assets will be used to cover such expenses.
Q. What is a Systematic Investment Plan (SIP)?
Ans. SIP is an investment option offered by mutual funds wherein you can invest small amounts periodically instead of investing in lumpsum. The time period of investments, is however, fixed at either monthly, quarterly or annually basis.
Q. What is the difference between multi cap and mid cap?
Ans. Multi cap investments offer its investors a combination of small cap, mid cap and large cap funds, while mid cap investments can be made only in companies with medium-sized market capitalization.
Q. Is mid cap mutual fund safe?
Ans. All types of mutual fund investments are exposed to a certain level of risk and hence, must be made only after complete study about the fund and its past performance. Mid cap mutual fund investments tend to offer higher returns in the long term, while also being highly volatile in nature.
Q. How is SIP return calculated?
Ans. You may calculate the returns on your SIP investments using the SIP calculator by Paisabazaar.com.
Q. How are Mutual Funds taxed?
Ans. Investments in mutual funds are liable for Short Term Capital Gains Tax at 15% if redeemed before a year. If redeemed after 1 year of investing, the investors will be liable to pay Long Term Capital Gains Tax of 10% on returns of more than Rs. 1 lakh in a financial year.
Q. What are the best mid-cap mutual funds to invest in FY 2019-20?
Ans. Following are the best mid cap mutual funds to invest in FY 2019-2020-
Kotak Emerging Equity Scheme
L&T Midcap Fund
Invesco India Midcap Fund
DSP Midcap Fund
HDFC Midcap Opportunities Fund