Mid-cap funds as per mandate are required to compulsorily invest at least 65% of its assets in mid-cap companies.
What are mid-cap companies
Mid-cap companies are defined as a total of 150 companies whose market capitalisation is lower than top 100 companies in terms of full market capitalisation.
Why mid-cap funds in the current market scenario?
With the current tensions of US-China Trade war, mid-cap companies are better placed, as they are more dependant on the domestic market.
India’s GDP is expected to double in the next 7–8 years. This will lead to an increase in the market size of the domestic market and hence, benefitting a lot of mid-cap companies (like growing bigger to become large-cap companies).
A lot of sectors have mid-cap companies as market leaders like L&T in the infrastructure sector, ACC in the cement sector, etc. Hence, the growth potential of investing in them is very high.
2018 saw significant underperformance of mid-cap stocks as compared to the NIFTY. Owing to the significant correction (of 25%) that midcaps went through in 2018, they are much better placed and more reasonably valued. 2019 will be a volatile year owing to upcoming elections, high crude oil prices, depreciating rupee, improving corporate profitability – and hence, it is recommended to start investing in mid-cap funds through SIPs.
Adding mid-cap funds to your portfolio gives a boost to your portfolio returns.
Though as they increase portfolio risk, they are not suitable for every investor.
Tips for investing in mid-cap funds
- Invest through SIPs so you can benefit from the current volatility faced by the markets.
- Invest with a time horizon of at least 5 years. Staying invested for long decreases the probability of low returns or capital erosion.
- Continuously monitor your investments. In instances of unusually high returns delivered by mid-cap funds, you should consider booking some profits (after taking into account capital gain tax, exit load). Also, if a fund is continuously underperforming, the reason should be understood and if not satisfied, you should consider moving your investments to a better fund. This activity can marginally increase your portfolio returns
Best mid-cap funds
Below are some of the best mid-cap funds (in no particular order) –
Why these funds? These funds have been tested through the below parameters –
- Past returns in bull & bear markets – Their past returns since inception have been tested through both bull and bear markets – that is in bull markets they beat the benchmark and their peers and gave better returns while in bear markets, they contained their losses better than the benchmark and their peers
- Consistency – These funds consistently ranked in the top quartile in their category, that is, their performance was in the top 25% of the category maximum number of times.
- Risk per unit of return – Statistical measures like Standard deviation, Sharpe ratio, beta were tested to come to the conclusion that these funds are not taking more risk than the average to generate better returns
- Rolling Returns – to observe the behaviour of returns actually experienced by investors.
- The credibility of fund house & asset manager – to make sure your money is in safe hands with good parents.
How much should you allocate to mid-cap funds
It depends on your risk profile. You must check your risk profile before taking this decision. Risk profile defines the risk you will be comfortable to take – financially and psychologically.(by answering just 5 questions).
Conservative, moderately conservative and a balanced investor should avoid allocating any portion of their portfolio in mid-cap funds. They should rather invest in large, multi-cap, large & mid-cap funds. Mid-cap funds are riskier for investors with such a risk profile
A moderately aggressive investor should consider allocating 15% of his portfolio in a mid-cap fund – via SIPs.
And an aggressive investor should invest 25% of his portfolio in a mid-cap fund – via SIPs.
For more advice, you may log on to, consult our investment experts and start investing in under 5 mins (completely online & paperless) in the best investment portfolios – for free !