Mid Cap Mutual Funds

What Are Mid Cap Mutual Funds?

Mid-cap mutual funds are equity mutual funds that mainly invest in medium-sized companies. Under the Securities And Exchange Board Of India’s (SEBI) classification rules, these companies fall between the 101st and 250th ranks based on market capitalisation. Many of them are already established in their respective sectors. Unlike large companies, however, many of these businesses are still expanding and working to strengthen their position in the market.

Interest in mid-cap funds usually rises when market conditions remain positive, and investors start looking beyond large-cap companies. The category, though, can go through phases where returns fluctuate quite sharply over shorter periods.

How Do Mid Cap Funds Work?

Mid-cap funds put money into medium-sized companies from different sectors. A fund manager manages the portfolio and reviews the companies regularly. Certain stocks may continue in the fund for years. Others may exit along the way based on market conditions.

How it works:

• Money from multiple investors is pooled into the fund
  
• The portfolio is built around different mid-sized companies across sectors
  
• Depending on market conditions, some sectors may receive a higher allocation
  
• The portfolio keeps changing from time to time instead of remaining fixed
  
• Certain stocks may be increased, reduced, or replaced gradually
  
• Investors can choose between SIP investing and lump-sum investments
  

Features Of Mid Cap Mutual Funds

Portfolios of mid-cap funds are rarely concentrated in a single sector. Hence, investors get exposure to different parts of the market.

The fund's features include:

• Primarily invested in mid-sized listed businesses
  
• Professionally managed by experienced fund managers
  
• Multiple sectors can form part of the same portfolio
  
• Performance may vary quite a bit across market cycles
  
• SIP and lump-sum investment options are both available
  
• Often considered by investors looking beyond traditional large-cap exposure
  

Benefits Of Investing In Mid Cap Mutual Funds

Over the years, mid-cap funds have attracted considerable attention from long-term investors. Some investors enter the category for growth potential. Others simply want exposure beyond the usual large-cap names dominating the market.

Benefits include:

• Over longer periods, returns from mid-cap funds may sometimes be higher than certain large-cap categories
  
• Investors can participate in the growth journey of businesses that are still expanding
  
• Companies from different industries can be part of the same portfolio at the same time
  
• Stock selection and portfolio decisions are handled by the fund manager
  
• Investors can begin with smaller SIP amounts instead of investing a large amount together
  

Risks Associated With Mid Cap Mutual Funds

Even the best mid-cap mutual funds are not free from risk. Market movements can affect these funds quite sharply at times, which is why investors usually enter this category with a longer investment horizon in mind.

Risks investors should know about:

• Market Movements
  Mid-sized companies can see bigger price swings during uncertain phases in the market. In some cases, corrections may happen faster than expected.
  

• Sector Concentration
  At times, a fund may end up holding a larger exposure to a few sectors that appear promising. If those industries go through a weak phase, returns can come under pressure as well.

• Liquidity Issues
  Not every mid-sized company sees heavy trading activity in the market. During periods of panic selling or uncertainty, stock prices may move unevenly.
  

• Slower Recovery After Corrections
  Some mid-cap companies can take considerable time to bounce back after a broad market fall. Weak market phases may therefore continue affecting fund performance for longer stretches.
  

Who Should Invest In Mid Cap Mutual Funds?

Mid-cap funds are not always preferred by conservative investors. The category is more commonly explored by people who are comfortable staying invested through different market phases and temporary fluctuations.

This category includes:

• Investors with a moderate to high risk appetite
  
• People planning to stay invested for the long term
  
• Those who are comfortable with short-term market fluctuations
  
• Investors looking beyond only traditional large-cap exposure
  
• Individuals willing to continue investing during market corrections
  

Top 5 Mid Cap Mutual Funds

The table below includes some of the top mid-cap mutual funds currently tracked by investors. Portfolio structure, historical performance, and investment style are some commonly reviewed factors while comparing funds.

Mid Cap Funds Vs Large Cap Funds Vs Small Cap Funds

The difference between these categories mainly comes down to company size. Large-cap funds are usually associated with bigger businesses that already have a strong market presence. Small-cap funds move towards smaller businesses that are still in relatively early stages of growth. The return potential there can be higher. So can the volatility. Mid-cap funds are usually considered a middle ground between the two categories.

Factors To Consider Before Investing In Mid Cap Mutual Funds

Not every investor approaches mid-cap funds with the same expectation. Some focus on returns and growth. Others may focus more on volatility and the overall portfolio strategy of the fund. Fund performance across different market phases is also looked at quite closely by many investors.

Factors often considered include:

• Planned investment duration
  
• Comfort level with short-term market fluctuations
  
• Whether the fund has shown consistency across market cycles
  
• Sectors and companies included in the portfolio
  
• The investment style followed by the fund manager
  
• Choice between SIP investing and lump-sum investing
  

Taxation On Mid Cap Mutual Funds

Since mid-cap funds are classified as equity mutual funds, the tax treatment changes based on the holding period. Capital gains are divided into Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) categories. Tax liability may therefore differ from one investor to another based on the holding period and total gains booked during the financial year.

A few additional points investors should know:

• Taxation applies only when units are redeemed
  
• SIP investments are taxed individually based on the purchase date
  
• Dividend income, if any, is taxed as per the investor’s income slab
  
• Tax rules may change based on future government regulations
  

How To Invest In Mid Cap Mutual Funds Online?

Before investing online, many people spend some time comparing mutual fund platforms, fund houses, and available mid-cap funds. Fund manager history is another factor many investors keep an eye on. Along with that, users often compare platform experience and available investment options.

Steps to invest in mid-cap funds on Kotak Neo:

• Login to the Kotak NEO App with your username and password.
  
• Look for the Invest option on the bottom navigation bar.
  
• Under Other Investments, select Mutual Funds
  
• Search for Mid-Cap Funds
  
• Go through the available options and choose a scheme that suits you
  
• Tap on Invest Now
  
• Pick SIP or lump sum investment and enter the amount
  
• Accept the T&C, and click Proceed.
  
• Complete the payment via your bank's e-banking page.
  

Why Consider Mid Cap Mutual Funds For Long-Term Wealth Creation?

Many businesses in this segment are still in the process of scaling up. Hence, a long-term perspective is generally considered ideal for mid-cap funds.

Long-term investors look at the category closely because:

• Businesses can look very different after several years
  A mid-sized company today may not remain mid-sized forever. Some businesses continue growing steadily over long periods and eventually move into a much larger league.
  

• Short-term phases do not always define long-term outcomes
  Mid-cap funds can go through uncomfortable phases in the short run. But investors who stay invested for several years often pay less attention to temporary market swings.

• The category gives access to emerging businesses
  Many companies in mid-cap portfolios are still building scale. Therefore, investors get exposure before those businesses become more widely tracked in the market.

• SIPs allow gradual participation across market levels
  Rather than investing a lump sum together, some investors choose to build exposure gradually through SIPs. That way, investing does not stop every time markets fluctuate.

Disclaimer: This article is for informational purposes only and should not be considered investment advice from Kotak Neo. For compliance T&C and disclaimers, Visit www.kotakneo.com/disclaimer