When investing in mutual funds, the options can be overwhelming. From large-cap to small-cap, there are various types of mutual funds, each with its benefits and risks. One category that often attracts investors’ interest is the mid-cap mutual funds.
These funds strike a balance between large-cap funds’ stability and small-cap funds’ growth potential, making them a popular choice for those seeking higher returns without taking on excessive risk.
Let’s dive deeper into what mid-cap mutual funds are, their benefits, and how they fit into different mutual fund types.
What are Mid Cap Mutual Funds?
Mid cap mutual funds are a type of equity mutual funds mainly investing in mid-sized companies. These companies are classified as mid-cap based on their market capitalisation, which typically ranges between ₹5,000 crore and ₹20,000 crore. Mid-sized companies are those that have already moved past the initial growth phase but are not as large and established as blue-chip companies.
The term “mid-cap” refers to the middle-sized companies listed on the stock market. These firms have a proven business model and are often on the verge of becoming large-cap companies, offering significant growth potential. By investing in mid-cap mutual funds, you are essentially betting on the future growth and expansion of these promising companies.
Types of Mutual Funds: Where do Mid-Cap Funds Fit in?
Before we discuss the benefits of mid-cap mutual funds, it’s essential to understand where they fit into the broader category of mutual fund types. Here are the three main categories:
- Large-Cap Mutual Funds: These funds invest in well-established, large companies with a strong market presence. They are considered stable but may offer lower returns compared to mid-cap funds.
- Mid-Cap Mutual Funds: These funds invest in mid-sized companies, aiming to capture the growth potential of expanding businesses that have not yet reached the size of large-cap companies.
- Small Cap Mutual Funds: These funds focus on smaller, emerging companies with the potential for high growth. However, they come with higher risks due to market volatility and uncertain business performance.
Benefits of Mid-Cap Mutual Funds
Now that you understand what mid-cap mutual funds are, let’s look at some of the key benefits of investing in them:
- Mid-cap companies with higher growth potential are usually in their growth phase. They can quickly adjust to changes in the market and seize new possibilities since they are more nimble than large-cap firms.
- Investing in mid-cap mutual funds adds a layer of diversification to your investment portfolio. Instead of putting all your money into large, established companies, you get exposure to a wider range of companies that may perform well during different market conditions.
- While small-cap funds have high growth potential, they also carry high risks. Large-cap funds, on the other hand, are more reliable but could yield lesser returns. Mid-cap mutual funds strike a balance between the two, providing a better risk-reward ratio.
- Mid-cap companies often include those on the brink of becoming industry leaders. By investing in these funds, you get to participate in the growth of companies that might soon become the next big players in the market.
How to Start Investing in Mid-Cap Mutual Funds?
Starting your journey with mid-cap mutual funds is straightforward. One of the most popular ways to invest is through a Systematic Investment Plan (SIP). You invest a set amount on a regular basis, say once a month, with an SIP. This approach not only helps build a disciplined investment habit but also reduces the risk of market volatility through rupee cost averaging.
For example, using an SIP calculator, you can easily determine how much you must invest each month to reach your financial goals. The SIP calculator provides you with a comprehensive image of your possible returns by taking into account your contribution amount, predicted returns, and investment duration.
Who Should Invest in Mid-Cap Mutual Funds?
Mid-cap mutual funds are appropriate for those who:
- Have a Moderate Risk Appetite: If you are comfortable with some market fluctuations for the chance of higher returns, mid-cap funds may be a good fit.
- Seek Long-Term Growth: Mid-cap mutual funds are best suited for long-term investors for at least 5-7 years to help you reap the benefits.
- Want Diversified Exposure: To diversify your portfolio beyond large-cap stocks, adding mid-cap funds can provide exposure to a wider range of growth companies.
Conclusion
Mid-cap mutual funds in India offer an excellent opportunity for investors looking to benefit from the growth potential of mid-sized companies. As part of a broader investment strategy, they provide a balanced mix of risk and reward.
Whether you are a seasoned investor or just starting out, investing in mid-cap mutual funds through SIP can be a smart way to grow your wealth over time.
