When investing in Equity Mutual Funds, choosing a scheme that focuses on the correct market capitalisation is crucial when you try to meet your investment objectives. The market capitalisation of a particular company enables investors to determine the benefits they can claim and the associated risks of investing in it.
Equity Mutual Funds are categorised into various types based on the market capitalisation of companies they invest in, and a Mid-Cap Fund is one of them.
What is it?
Mid Cap Mutual Funds invest in Equity and Equity-related instruments of mid-cap companies. According to the definition provided by the SEBI, mid-cap companies are those that are ranked between 101 and 250 on a list of companies that categorises them according to their market capitalisation. Mid-cap companies lie between small- and large-cap companies. This placement allows them to offer better returns than Large-Cap Mutual Funds.
However, they are more volatile. Meanwhile, Mid-Cap Funds are stabler than Small-Cap Funds. However, they offer lower returns than Small-Cap Funds. Hence, Mid-Cap Mutual Funds perfectly balance returns and risk.
Who should invest?
Mid-Cap Funds invest in stocks of mid-cap companies. As it is a pure Equity Mutual Fund, there are risks associated with it. Hence, only those investors who have an appropriate risk appetite should invest in them. Mid-cap companies have growth potential and generate significant returns in the long run. However, they are also volatile.
Hence, you should be a long-term investor and have an eight to 10-year investment horizon if you decide to invest in such funds. Choosing the best Mid-Cap Mutual Funds and investing in them, can offer you excellent compounding benefits. However, compounding takes time. So, investing in them is ideal for young investors who have enough years in hand to enjoy the benefits.
You can also invest through a System Investment Plan if you do not have a large corpus. However, if you are nearing retirement and do not want to stay invested for a long time, these Mutuals Funds may not be ideal.
Things to consider
Some things that you should consider before investing in Mid-Cap Mutual Funds include:
- Taxation: They are subjected to both Dividend Distribution Tax and Capital Gains Tax.
- Performance: Assess how the Mutual Fund has performed in the past five to seven years and compare it with others before investing.
Expense Ratio: The percentage you pay as an expense ratio to the Asset Management Company has a significant impact on your returns. So, you must determine the expense ratio of the fund before investing.
