Mid Cap mutual funds: an excellent way to invest

What are mid cap mutual funds?

Mid-cap mutual funds are those funds which are invested in stocks of mid-sized companies with medium-market capitalizations. In this context, the specific word ‘cap’ refers to the size of the listed company or the market capitalization.It may range between INR 500 crore to INR 10000 crore.The size of a company is always an important criterion while selecting equity portfolios because the portfolio would have its unique set of risks and opportunities depending on the size of the company. These companies usually have the potential to become large companies and therefore are promising investment avenues.

Investors who are targeting for better growth and have high-risk appetite  as compared to large cap funds should invest in mid cap mutual funds. If investors are comfortable to go with the flow of volatility of stocks, then mid-cap mutual funds it is. Mid-sized companiesusually  tend to provide steep growth and faster earnings while being more on the volatile side on the stock index.

Key Points To Consider while investing in mid cap funds

Before investing in Mid cap Mutual funds, there are a few things investor should keep  in mind:

Mid-cap companies tend to be more volatile and see greater price movement as compared to the large cap companies. They perform very well in the bull, but they tend to plunge in value when the market sentiment is going down altogether.

Some mid caps also suffer from liquidity constraints due to their capital base. These funds tend to follow the cycle of boom and bust as the underlying shares are characterized by lower market capitalizations and limited liquidity.

How To Evaluate Your Mid Cap Mutual Funds?

Performance and risk analysis.

 If the mid cap has shown consistent performance across various market periods with calculated risk adjusted returns, then it might be a good bet.It should also be checked what was the fund performance during the short term and long-term periods such as 1 year, 3 years and 5 year, depending upon the risk- reward ratios .

Performance across Market Cycles:

Before investing make sure to checkwhether the fund can perform consistently across different market cycles. One should compare the performance of all the available mid cap funds vis-a-vis their benchmark index across bull phases and bear phases.

Assessment of Portfolio Quality:

The investor portfolio should be well diversified and the exposure to the top 10 holdings should ideally be under 50%. Further, it should be ensuredwhether the mutual fund house has a track record of consistent performance over different schemes.

Best mid cap funds to invest

Following are a few mid caps funds that are good to invest in:

L&T Midcap Fund (G) – Direct Plan- Returns 3Y: 18.10%

DSP Midcap Fund (G) – Direct Plan – Return 3Y: 16.02%

Invesco Midcap Fund (G) – Direct Plan – Return 3Y: 16.17%

Franklin India Prima Fund (G) – Direct – Return 3Y: 14.55%

HDFC Midcap Opp Fund (G) – Direct – Return 3Y: 15.62%

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