Best Mid Cap Mutual Funds

What are Mid Cap Mutual Funds?

Mid cap mutual funds allow you to invest in the shares of mid-sized companies. These are the companies that are ranked between 101 to 250 on the stock exchanges and have a market capitalization between Rs. 5,000 crores to Rs. 20,000 crores. The best mid cap funds have the potential to generate higher returns than large-cap funds but are also riskier.

Features of Mid Cap Mutual Funds

Below are the prominent features of mid cap mutual funds:

• As per the Securities and Exchange Board of India (SEBI) rules, mid cap mutual funds invest at least 65% of their corpus in the stocks of mid-sized companies

• Mid cap mutual funds are not as risky as small-cap funds but riskier than large-cap mutual funds. In short, they carry moderate to high risks

• Mid cap funds have the potential to generate higher returns than large-cap equity funds. The top mid cap funds can even outperform large-cap funds in the long term

• All mid cap mutual funds are equity-oriented funds. So, they are very prone to market volatility, and the returns generated by them depend on the performance of the underlying equity shares

Who Should Invest in Mid Cap Investment Funds?

Mid cap equity funds entail moderate to high risks. They are not as risky as small-cap funds but neither as safe as large-cap funds. These funds invest a large portion of their corpus in growing companies, and hence, events like an economic slowdown or a prolonged recession can impact their returns. 

But at the same time, these funds have the capability to generate superlative returns in five to ten years. The top mid cap funds usually outperform even the best large-cap funds in the long term. So, if you’re looking to generate high returns on your investment in the long term and can tolerate medium to high risks, mid cap mutual funds are a good option for you.

However, before you invest your money in mid cap funds, you must consider several factors, such as:

• Investment Goal
  Not all investors have the same investment goal. Make sure you understand your investment goal properly before investing in a mutual fund. Mid cap mutual funds are best-suited for those who have a medium to the long-term investment horizon.

• Expense Ratio
  The expense ratio determines the amount that is paid to the fund manager for managing the mutual funds. A high expense ratio may bring down the returns and vice-versa. Therefore, you should always compare the expense ratio of a mid cap fund with its peers before investing in it.

• Past Performance

  Although the past performance of a fund does not guarantee future returns, it can give you a rough idea. You can look at the past performance of a mid cap fund to evaluate how it reacts to market volatility and then make an informed investment decision.

Taxation on Mid Cap Mutual Funds

As mid cap mutual funds are classified as equity-oriented funds, their returns are taxed as per any other equity mutual fund. To understand the taxation rules for mid cap funds, you will have to first understand the two types of returns they can generate:

• Dividends
  Dividends are a part of the company’s profit distributed to the investors. The dividends received on mid-cap funds attract a Dividend Distribution Tax (DDT) of 10%. The fund house deducts this tax before paying the dividend amount to you.

• Capital Gains
  Returns generated by equity instruments in the form of wealth appreciation are known as capital gains. If the investments are held for less than one year, returns from them are said to be Short-Term Capital Gains (STCG) and attract a tax of 15%. However, if the investments are held for one year or more, returns from them are classified as Long-Term Capital Gains (LTCG) and attract a tax of 10% without indexation. Long-term capital gains up to Rs. 1 lakh are tax-free.

Advantages of Investing in Mid Cap Mutual Funds

The following are the advantages of investing in mid cap equity funds:

• High Growth Potential
  Mid cap mutual funds invest a major portion of their corpus in companies with medium market capitalization. These companies have a high potential to grow in the future, and hence, mid-cap funds can deliver huge returns in the medium to long term. They can even outperform the best large-cap funds in around five to ten years.

• Portfolio Diversification
  Mid cap mutual funds are the best options to diversify your investment portfolio. They are not as risky as small-cap funds and neither as safe as large-cap funds. Thus, you can invest in mid cap funds to provide a balance to your portfolio. They can generate significant returns in the long term with moderate to high risks.

• Transparency
  SEBI mandates all Asset Management Companies (AMCs) to display the NAVs, expense ratios, and monthly portfolio of their mid-cap funds on their websites. You can have a look at this data and make an informed decision while investing in a mid cap mutual fund.

How to Invest in Mid-Cap Funds?

You can invest in the mid cap mutual funds in two ways - by directly visiting AMC’s website or through a mutual fund distributor. Tata Capital’s Moneyfy app can help you invest in the top mid cap funds from the comfort of your home or office. All you need to do is visit our website or download the Moneyfy app on your smartphone, create your investor account through e-KYC, and start investing!