Best Mid Cap Mutual Funds

Best Mid-Cap Mutual Funds

What are the Best Mid-Cap Mutual Funds?

If you invest in the Midcaps today, they can move into large caps in future or come down to low caps, depending on companies’ performance.

 Hence, people looking to invest in Mid Caps must be prepared to handle the uncertainty and volatility of the stock market. It would be best to be mentally prepared to hold on to your stocks for at least

5-7 years to balance the rise and fall and eventually find their true value. Diversification is the key to safeguarding and ensuring growth in stock markets. Mid-caps provide that fine balance to your portfolio.


If we look at the past year, Mid-cap funds have provided excellent returns, and their prospects look even better. In India, the top-performing Mid Cap funds include TATA, Nippon, Axis and PGIM India mutual funds.

 Mid-cap mutual funds invest in the stocks of companies ranked between 100 to 250. These companies have a decent market capitalization and the potential to offer higher returns than large caps and lesser risk than low caps.

 Mid-cap funds invest at least 65% of their assets in equities and related instruments of mid-cap companies. 

List of Top Mid-Cap Mutual Funds

Based on their three years ' returns, here is a list of top Mid-Cap mutual funds in 2022. However, returns are not the only selection criteria for Mid-Cap funds.

You should also consider other critical factors, including AUM, historical performance, risks, expense ratio, tax, NAV trend and most critical future prospects of the companies.

• PGIM India Mid-Cap fund – 36.7% (3 yrs return)
  
  
• Quant Mid-Cap fund – 29.5% (3 yrs return)
  
  
• Baroda Mid-Cap fund – 28.1% (3 yrs return)
  
  
• Nippon India Mid-Cap fund – 27.7% (3 yrs return)
  
  
• Tata Mid-Cap fund – 26.3% (3 yrs return)
  
  
• Mahindra Manulife Mid-Cap fund – 25.9% (3 yrs return)
  
  
• Axis Mid-Cap fund – 24.6% (3 yrs return)
  
  
• Invesco Mid-Cap fund – 24.9% (3 yrs return)
  
  
• SBI Magnum Mid-Cap fund – 24.89% (3 yrs return)
  
  
• HDFC Mid-Cap fund – 22.1% (3 yrs return)
  
  
• DSP Mid-Cap fund – 20.9% (3 yrs return)
  
  
• Sundaram Mid-Cap fund – 17.7% (3 yrs return)
  
  
• UTI Mid-Cap fun – 15.3% (3 yrs return)

Features of Mid-Cap Funds

Let us look at the features of Mid-Cap funds that you must be aware of before adding them to your portfolio.

• High returns and growth potential – Mid-Cap funds are often undervalued and provide higher returns than small and large caps. The companies with mid-level market capitalization have much higher
  
  Growth potential than large-cap companies. Since Mid-caps are highly responsive to change, they thrive when the market is bullish, and you earn higher.
  
  
• Risk factor – Mid caps are riskier than large-cap funds. However, they are at a much lower risk than small-cap funds due to a sound business model. They provide a perfect balance of risk and return.
  
  
• Diversification and liquidity – Mid-Cap funds have emerging companies from different niches. Hence, they allow the investors to diversify the portfolio and minimize the risk when a particular niche isn't performing well.
  
   All significant best Mid-Cap funds allow their investor to sell and liquidify their funds whenever they want.
  
  
• Long term Investment horizon – When you invest in Mid-Cap funds, you need to give them time. They are volatile in the short term but perform well in the long term when the companies settle down. You must be ready to provide them with 7-10 years.
  
  
• Subject to taxation- Mid caps are taxable in both short and long terms. For less than one-year, STCG tax of 15% and long term LTCG tax of 10% applies.
  
  Dividends above INR 5,000 come under TDS. The overall bonus gets added to the taxable income.
  
  
• Expense ratio – The asset management firm that charges annual fees to manage your investments is the expense ratio. To get the maximum returns, ensure to pick the funds with the least expense ratio.

How do Mid-Cap Funds Work?

Mid-Cap mutual funds invest a minimum of 65% of the equity in mid-sized companies, typically ranked between 100 to 250 based on their market capitalization.

Since these companies have high growth potential in the long term, the Mid-Cap funds are excellent for boosting your portfolio.
The best thing about Mid-Cap funds is that it allows you to invest money in small amounts through SIP (systematic investment plan.)

 So, you can invest as low as INR 500 without burdening your expenses. Here is how it works; your buy fund units and the fund manager invests your money along with all other investors' money by doing research.

 So, you don't need to worry about the market situation. The fund manager keeps all the factors in mind while investing, assuring you the maximum returns with minimum risk.

These Mid-Cap funds tend to be volatile in the short term. However, in the long term, they give excellent returns and dividends. The investors can sell their units anytime. But there is an exit load of 1% if you sell them within less than a year. 

Who Should Invest in Mid-Cap Mutual Funds?

Mid-Cap mutual funds are lucrative. However, they do have their share of risks and challenges. The mid-sized companies may allocate a considerable number of shares to investors.

 Hence, liquidity can be an issue. These companies have the potential to do well and turn into large organizations.
The market conditions can never be 100% stable.

 During the economic slowdown, mid-cap funds can take a massive dive causing distress to investors. In contrast, they give you the maximum returns while the market is bullish.
 
If you have an appetite for taking risks and remain in the market for the long term, then investing in mid-cap mutual funds makes sense. You can easily get a 12-18% profit in the long-term investment.

 Investors who want to diversify their portfolios should also invest in mid-caps. Since the large-caps are stable and small-caps tend to be volatile and risky, mid-caps provide much-needed balance to their portfolio.

Taxation on Mid-Cap Funds 

Mid-Cap mutual funds are taxable like any other equity investments. If you plan to invest in mid-caps, you should be aware of the taxation and additional relevant charges.

 An investment of less than one year is considered short-term, and more than a year is a long-term investment.

• If you redeem your investment within a year, a short-term capital gain (STCG) tax of 15% (+ 4% Cess) is applicable.
  
  
• A Long-term capital gains (LTCG) tax of 10% (+ 4% Cess) is applicable if you redeem your investment any time after one year.
  
  
• Dividends are taxable and come under Income tax slabs. If you earn any dividend above INR 5,000, it is subject to 10% TDS.
  
  
• The Mid-Cap mutual funds are subject to a security transaction tax of .001% at the exit.
  
  
• Looking at the taxation rules, you should always hold your funds for at least 5 to 10 years.

Major Advantages of Mid Cap Funds

The Mid-Cap funds offer some excellent advantages over small and large-cap funds. Including,

• Growth prospects – Mid-sized companies strive to snowball; they aim to enter the large-cap space as soon as possible. Unlike small-sized companies,
  
  They have a business model and more avenues to grow than large capped companies that are already stable and have a saturated market. The investments in mid-cap funds tend to give higher returns than the large caps in the long run.
  
  
• Transparency – The Security and Exchanges Boards of India, usually called SEBI, keeps a close watch on all mid-cap mutual funds and makes them publish their NAVs, portfolio data, and expense ratio.
  
  Hence, as an investor, you are always aware of your fund's performance.
  
  
• Flexible and smaller investment - The Mid-Cap mutual funds offer flexibility in terms of investment amount and frequency. You can either invest an annual lump sum or a small monthly amount as a SIP (systematic investment plan.)
  
   The minimum yearly one-time amount is only INR 1,000, while you can invest in a monthly plan at INR 500 only.
  
  
• Portfolio diversification for lessor risk - Economic slowdown and sudden market crash pose a considerable threat to investors who buy stocks directly.
  
  However, your money is diversified in various companies in different sectors with mid-cap mutual funds, lowering the risk of adverse market conditions.

Risk of Mid-Cap Funds

Mid-sized companies are vulnerable to business cycles and prone to price volatility.Therefore, investing in Mid-Cap funds is comparatively riskier than the large caps.

The mid-capped companies are in the growth stage, and they tend to try out different avenues and strategies, which may or may not work. In case of any market disturbance, they may not be able to sustain during a particular business cycle.

Hence, their stock performance can be volatile.Risks are always attached when you invest in stocks. However, you should carefully calculate finances before investing and be ready to hold on for the long term instead of exiting in the short term.

Conclusion

Best Mid-Cap funds are suitable investments if they meet your needs and requirements. If you manage short term volatility, you can get an excellent return from mid-cap mutual funds.

 These funds are best suited for an investor who can absorb a high amount of risk and hold their investments for the long term.
These funds provide you with the right cushion between large and small-cap funds.

 They are riskier than small-cap but less risky than large caps. As a rule, you should focus on long term investment to get the best out of the equity market.

Frequently Asked Questions (FAQs)

Q1. Which mutual fund is best for mid-cap?

Looking at the recent performance and growth prospects below mutual funds can give you good dividends in 5-7 years.

• PGIM India Mid-Cap Fund
  
  
• Axis Mid-Cap Fund.
  
  
• Quant Mid-Cap Fund.
  
  
• SBI Magnum Mid-Cap Fund.
  
  
• Nippon India Mid-Cap Fund.
  
  
• Tata Mid-Cap Fund.
  
  

Q2. Which mid-cap SIP is best?

There are many mid-cap SIPS which have high growth and returns prospects. You can take a look and begin investing with any of the following.

• UTI Flexi Cap Fund
  
  
• Mirae Asset Bluechip Emerging Fund
  
  
• Canara Robecco Bluechip Emerging Fund
  
  
• Axis Mid Cap Fund
  
  
• Quant Active Fund
  
  

Q3. Is it good to invest in a midcap mutual fund?

Yes, midcap mutual funds can give you an excellent return and dividend. The fund manager allocates your money to emerging mid-sized companies, increasing the chances of profit and reducing the risk factor.

 Please note that midcap mutual funds require patience and can be volatile in the short term. Therefore, you should be ready to invest for the long term to get the best investment returns. 

Q4. How do I choose a midcap fund?

Before choosing a mid-cap fund, you should look at the past performance, growth prospects, the cost associated, taxation involved, and other factors. An important factor is the expense ratio; it is the annual cost the fund managing company charges.

 The lower the expense ratio percentage is, the more beneficial the fund. 

Q5. Should I invest in small-cap or mid-cap?

The investment decision between small-cap and mid-cap funds depends on various factors such as risk-bearing ability and duration of the investment. The small caps can promise good growth but can be much riskier than mid-caps.

 They also need a larger investment horizon, more than ten years, to yield returns. In contrast, mid-cap companies are better streamlined and have more chances of entering the large-cap club.

 Given an option, you should opt for mid-cap investments.