In the stock market, the market capitalization of a company is the present value of its shares multiplied by the total number of its shares. High market capitalization is an indicator of the stature of the company in the stock market. Market capitalization is the basis of the common mutual fund classifications – small-cap, mid-cap, and large-cap.
In India, the Securities and Exchange Board of India (SEBI) defines mid-cap companies as the ones that are ranked between 100 and 250 in terms of market capitalization. Mid-cap mutual funds are the ones who invest their corpus across a portfolio of mid-cap company shares.
Risk and reward – where do they stand?
When it comes to risk and reward, mid-cap mutual funds lie somewhere between small and large-cap funds. Large-cap companies are more matured in their growth cycle and therefore offer a relatively low but steady rate of return. Mid-cap companies are still growing and provide higher returns than large caps. However, their return is often not as steady as large-cap funds.
Who invests in mid-cap funds?
Mid-cap mutual funds should be given a longer time horizon of at least seven years to a decade. The underlying shares can be expected to grow during this period and should be given time to bounce back from slowdowns. Mid-cap fund investors are the ones who want to balance their risk and reward between small and large-cap funds. With a higher risk than large-cap mutual funds, large-cap investors have to increase their risk appetite to invest in mid-cap funds. Mid-cap funds are also geared towards younger investors as they are relatively high-risk and utilize the power of compounding.
Things to consider before you invest
Mid-cap fund investment needs a thorough understanding of the companies and a good investment manager can make the difference when it comes to the returns. Choose a fund manager who has a good track record of delivering returns for the mid-cap fund you’ve chosen. Choosing a well-reputed fund house could also help here as they might have good experience in managing mid-cap stocks.
You also need to make a comparison of the different mid-cap mutual funds online and finalize the one with good return, and low expense ratio. All equity investments, including mid-cap mutual funds, can have short-term volatility. Therefore, you should invest in these funds as a long-term investment.
To sum up,
Lying between the stability of large-caps and the high-yield potential of small-caps, mid-cap mutual funds provide a balanced approach towards equity investments through mutual funds. You can try starting a SIP through an easy-to-use Tata Capital Moneyfy app and start your investment journey.