Best Mid Cap Funds
About Mid Cap Mutual Funds
Mid cap mutual funds are a type of equity fund that mainly invest in mid cap stocks. As per SEBI’s definition, stocks that rank 101 to 250 based on market capitalisation are categorised as mid cap stocks. Mid cap companies have a market capitalisation between ₹5,000 crore and ₹20,000 crore.
These stocks tend to have greater growth potential compared to large cap stocks and have relatively lower volatility and risk than small cap stocks.
Mid cap funds are ideally suitable for investors with longer horizons. Therefore, these can be considered for goals like children’s higher education, repayment of home loans, etc.
How Do Mid-Cap Funds Work?
Equity-based mutual funds that invest mainly in the equity of mid-cap or medium-capitalisation companies are called mid-cap mutual funds. According to the classification of these funds by SEBI (the Securities and Exchange Board of India), stocks that have a ranking from 101 to 250 (aligned with market capitalisation) are within the category of mid-cap stocks. Typically, in mid-cap mutual funds, you may discover that funds primarily invest in the equity of companies with a market capitalisation in the range of ₹5,000 to ₹20,000 crore.
Mid-cap funds work on the premise that stocks in these funds are prone to potentially have a greater growth rate than large-cap stocks and have a comparatively lower degree of risk and volatility than small-caps. In this way, these funds work for investors who have long-term perspectives on investment and may wish to invest for reasons like, say, a child’s higher education or the repayment of certain loans.
Features of Mid Cap Mutual Funds
- Growth potential: Since mid cap stocks are in their growth stage and have good prospects compared to mature large cap stocks, mid cap funds enjoy greater chances of capital appreciation. This can prove to be favourable for investors.
- Risk: While there is a possibility of mid cap companies becoming industry giants (large cap) in the future, there is also a risk of such companies going bankrupt if they don’t do well. Hence, they are riskier than large caps but less than small cap funds.
- Expense ratio: Like other mutual funds, mid cap funds also have an expense ratio. These are charges that the Asset Management Company (AMC) imposes on investors to manage their mid cap funds. Such expenses are charged annually and are deducted from your returns. Picking a mid cap fund with a lower expense ratio can maximise your returns. However, you should also consider other factors such as returns, exit load, and fund manager’s performance before finalising a mid cap fund to invest in.
Advantages of Mid Cap Funds
- Attractive returns: Mid cap investments give relatively higher returns compared to large cap variants because such companies have higher growth potential. Often they may also have a good business record while also showing signs of becoming a potential industry giant.
- Comparatively less sensitive to market volatility: Similar to other mutual funds, a mid cap mutual fund is also sensitive to market volatilities. However, the rate of its underperformance at such times might be limited compared to small-cap funds. This is because mid cap funds are comparatively more mature than small businesses.
- A mix of small and large cap funds’ opportunities: Some of the best mid cap mutual funds can prove to be a common ground between large cap funds and small cap funds. This is because they can grow faster than large cap funds, and are less volatile than small cap funds.
- Diversification: While giving investors a middle ground in terms of risk and returns, it refrains them from going too far in extreme directions.
Risks Involved in Mid Cap Funds
- Volatility around market peaks: Despite having focused business models, some funds may also run a risk of becoming bankrupt in tough times. For example, a mid cap business may have most of its revenue flowing in from one major client. If that client terminates their orders and there is no way to compensate for it, the business will undergo losses. Besides, during times of market volatility, mid cap funds are hit harder than large cap variants. These funds are also more likely to experience price shocks when market valuations are high.
- Liquidity issues: Usually, if mid cap funds are invested for 7-10 years, they can offer better returns than large cap funds. However, investments in mid cap funds can be tied up during market crashes when it is difficult to find buyers. This is because investors tend to stick to stable, large cap funds during adverse times.
- Finite range: There is a limited number of schemes that focus on mid cap funds. So when the volume of investments grows, the fund managers are compelled to pick stocks from either the small cap or the large cap category.
Factors To Consider Before Investing in Mid-Cap Funds
While considering investment in mid-cap funds, it is worth thinking about some factors about the funds themselves. Here is a list of things you should ponder before you invest:
- You must remember that mid-cap funds are in the phase of potential growth. Given this, they have a greater opportunity to flourish relative to large-cap stocks. If you wish to achieve potential capital appreciation, you may want to think of mid-cap funds.
- The true acid test before you invest in any mid-cap fund is performance. You may delve into the historical performance of the fund itself as that is a reflection of the companies it invests in, or you may check the performance of the individual companies whose stocks make up the fund. Either way, performance is a key factor in opting for a mutual fund.
- You may want to contemplate your own investment requirements and financial goals before you invest in mid-cap funds. These equity funds may produce substantial returns, but to achieve this, investors may have to remain invested for the long run. In this regard, you may want to think about your age at investment.
- Since the potential of earning may be relatively high with mid-cap mutual fund investment, you may want to reflect on the expense ratios of the fund you are considering. In case expense ratios are high, they may potentially eat into your gains in the future.
- The way mid-cap funds work is through a proficient fund manager allocating your money to the equity of prospective mid-cap companies. You may want to evaluate the wealth allocation to companies in terms of how they are graded for possible growth in the future.
Who Should Invest in Mid Cap Mutual Funds?
- High-risk appetite: Investors with a tolerance to high risk can consider investing in these funds as they are susceptible to market volatility and economic downturns. The funds are also riskier than large cap variants.
- Long-term investment: Since these funds are relatively risky, they may take longer to recover than large cap funds in case of adverse market conditions. As for returns, mid cap funds have the potential to give higher returns than large cap variants. Considering these factors, mid cap funds are much-suited for investors with a long-term horizon.
- Has market knowledge: These funds are more suitable for investors who have been in the market for some time as they are in a better position to analyse the right fund based on risk, returns, and other parameters.
Taxability
Taxes reduce your overall income. Hence, it is important to understand how these instruments are taxed. The profits made by the investor after selling the mid cap fund are taxed based on how long the investment was held. Here are more details on how they are taxed:
Short-Term Capital Gains (STCG)
These are capital gains that you earn on selling mid-cap fund investments within 1 year of buying them. Such short-term capital gains are taxed at 15%.
Long-Term Capital Gains (LTCG)
Gains from mid cap investments held for more than a year are classified as Long Term Capital Gains. Profits of up to ₹1 lakh earned within a financial year are tax-free. When the gains exceed the said limit, investors are liable to pay a 10% tax without indexation provided.
Dividend taxation – The dividend income is added to the investor’s taxable income and taxed as per their slab. There is also a 10% TDS charged by the mutual fund house on dividend amount exceeding ₹5,000 in a financial year.
How To Invest in Mid-Cap Funds?
Investing in the mid-cap Mutual Funds is hassle-free when done through your Angel One account. You just have to follow these simple steps:
Step 1: Log in to your Angel One account.
Note: In case you do not have an account with Angel One, you can open a demat account with us in under a few minutes by submitting the necessary documents.
Step 2: Choose a mid-cap fund that suits your needs and risk profile. You can learn more about each mid-cap fund on the Angel One app. Things to consider at this stage are:
- Search for the fund you want to invest in.
- Analyse the fund’s past performance, tax incidence, and the sectors and companies it invests in. You can also calculate the potential returns using the calculator.
- Evaluate the fund’s level of risk, its ratings and expense ratio.
Step 3: Once you finalise the mid-cap fund(s) you want to invest in, open your Angel One account, go to the Mutual Funds section, and look for it.
- Decide whether you want to invest via SIP or make a one-time investment
- Decide your monthly SIP date. Now, enter the amount you want to invest and choose the payment mode.
- After placing the order, you can create an AutoPay to make hassle-free future instalments in case of SIP investments.
Top 5 Mid Cap Mutual Funds
| Name | AUM (₹ in crore) | Minimum Investment (in ₹) | CAGR 3Y (%) | CAGR 5Y
(%) |
| Axis Midcap Fund | 19,741.37 | 500 | 17.27 | 14.92 |
| Kotak Emerging Equity fund | 23,962.94 | 100 | 30.60 | 14.89 |
| Nippon India Growth Fund | 13,409.61 | 100 | 28.93 | 14.28 |
| HDFC Mid cap Opportunities Fund | 35,730.69 | 100 | 22.49 | 11.85 |
| DSP Midcap Fund | 13,213.27 | 500 | 18.94 | 9.21 |
The above-mentioned top funds are for informational purposes only and are not recommendations. The funds are based on 5-yr CAGR, which is subject to change frequently. Check out real-time data on Angel One.
Axis Midcap Fund
The Axis Midcap Fund has an impressive AUM of ₹19,741.37 crore. It has an exit load of 1.00% and requires a minimum lump sum of ₹500. It is benchmarked against S&P BSE 150 Midcap-TRI. The Axis Midcap Fund has a PE ratio of 51.20 and a Sharpe ratio of -0.24.
Here is how the fund is diversified: Investment banking & brokerage (12.12%), auto parts (9.72%), specialised finance (9.62%), retail – speciality (7.50%), and IT services & consulting (7.18%). The rest of the 24 sectors form 53.86% of the fund diversification.
Kotak Emerging Equity Fund
The fund has an exit load of 1.00% and a minimum lump sum requirement of ₹100. It aims to track Nifty Midcap 150-TRI. What is worth considering is that the fund has a total AUM of Rs. 23,962.94 crore.
The fund has a PE ratio of 42.14. The holdings are distributed in the following sectors: auto parts (10.21%), miscellaneous (7.68%), diversified chemicals (7.10%), home appliances and electronics (6.29%), and private banks (6.17%). The rest of the 29 sectors make up 62.55%.
Nippon India Growth Fund
The Nippon India Growth Fund is diversified in the following sectors: pharmaceuticals (7.95%), specialised finance (7.64%), private banks (7.35%), IT services & consulting (7.35%), and packaged foods and meats (5.58%). The rest of the 34 sectors make up 64.13%.
The Nippon India Growth Fund has an AUM of ₹13,409.61 crore, a PE ratio of 37.59 and a Sharpe ratio of 0.27. With an exit load of 1.00%, the fund requires a minimum lump sum of ₹100. Its benchmark is Nifty mid cap 150 – TRI.
HDFC Midcap Opportunities Fund
With a total AUM of ₹35,730.69 crore, the funds’ exit load is 1.00%, and the minimum lump sum requirement is ₹100. Its benchmark is Nifty Midcap 150-TRI, the PE ratio is 30.62, and its Sharpe ratio is 0.56.
Here’s how the fund is diversified: auto parts (12.87%), specialised (9.46%), industrial machinery (7.37%), diversified chemicals (7.04%), and IT services & consulting (5.89%). The rest of the 29 sectors comprise 57.36% share.
DSP Midcap Fund
The DSP Midcap Fund is diversified in the following sectors: pharmaceutical (8.91%), private banks (7.66%), specialised finance (6.22%), diversified chemicals (6.17%), and fertilisers & agrochemicals (6.16%). The rest of the fund is diversified into 23 other sectors that make up 64.88%.
It has an exit load of 1.00%, a minimum lump sum of ₹500 and a benchmark of Nifty midcap 150-TRI. Furthermore, the DSP Midcap fund has a PE ratio of 36.16 and a Sharpe ratio of -0.32. The fund holds a total AUM of ₹13,213.27 crore.
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