Sharekhan Blog

Mid-Cap Fund: Meaning, Features, and Process

  • Jan 12, 2024

The market capitalization rate is a key factor used to classify mutual funds. The collective worth of a company’s shares is reflected through its market capitalization.While organizing companies in descending order of market capitalization, the ones ranking between 101 and 250 are classified as mid-cap.

These mid-cap funds allocate at least 65% of their assets to medium-sized companies. The best mid-cap mutual funds offer the best of both worlds by combining the stability of large-cap funds and the growth potential of small-cap funds. Dive into this informative guide to expand your understanding of mid-cap mutual funds.

Features of Mid-Cap Mutual Funds

If you want to identify mid-cap mutual funds, you need to look for the following features:

1. Expense Ratio

Fund houses charge an expense ratio to cover their management and administrative expenses. This expense ratio makes up a small fraction of the total assets of the fund. SEBI regulations mandate the maximum expense ratio to be 2.50%. By investing in mid-cap mutual funds with a lower expense ratio, one can expect greater returns on their investment.

2.  Compounding Benefits

Investing in mid-cap equity funds can provide significant compounding advantages to investors. However, the benefits of compounding take time to come to the limelight. So, it is only a suitable choice for young investors.

3. Long-Term Investments

Mid-cap companies are always in their phase of growth. So, some of them may eventually become large-cap companies in the future. This creates the need for investors to invest in mid-cap funds for the long term. Creating an investment horizon for 8 to 10 years will help investors maximize their potential gains from investing in mid-cap funds.

For those near retirement, it is essential to carefully select schemes that align with their age. These mid-cap mutual funds are commonly recommended for young investors, as they have more time to reap the rewards of compounding.

The Process to Invest in Mid-Cap Funds

Before investing in mid-cap funds, you need to undergo the following steps:

1. Set Out Your Invest Objectives

Before you invest in a mid-cap fund, you should distinctly define your investment objectives like risk horizon and timeline. Look for mid-cap funds that support your objectives after you have a firm grasp on what they are.

Don't forget to assess their performance against pertinent peers and benchmarks. Never forget to prioritize long-term success over immediate benefits.

2. Finish the KYC procedure

To invest in a mid-cap fund, you must finish SEBI's one-time KYC procedure. To accomplish this, you must register all of your personal data and present identification and proof of address. There can be more documents needed, depending on your circumstances.

3. Begin Investing

After locating the top mid-cap mutual fund, you must select the appropriate investing strategy. If you want to invest a set amount at regular periods, you can use the SIP approach. A lump sum investment made one at a time is the alternate strategy.

Why Are Mid-Cap Mutual Funds a Good Choice for Investors?

You can rely on mid-cap mutual funds for the following reasons:

1. High Growth Potential

As mid companies are on the precipice of growth, they can gain more market recognition in the future. As a result, their values will increase with time.

2. Diversification

Typically, investors tend to favour large caps or multi-cap funds when starting their mutual fund endeavours. However, incorporating some mid-cap mutual funds into your portfolio can prove to be a beneficial diversification strategy. This offers stability and reduces overall portfolio volatility.

3. Active Management

A mid-cap fund managed by seasoned professionals is a prime choice. Fund houses employ dedicated teams to meticulously oversee the performance of their portfolio companies.

Final Thoughts

It's critical to remember that selecting a mid-cap fund carries a unique set of risks. As with any other investment, careful planning and investigation are essential. It's critical to evaluate the risks involved and match your investments to your unique financial goals. When used strategically and with an eye on long-term growth, mid-cap funds can be an invaluable tool for accumulating wealth.


Team Sharekhan
by Team Sharekhan

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