What are Mid Cap Funds – Complete Information about Mid Cap Funds
When it comes to investing in equity mutual funds, we need to choose a mutual fund scheme with the right market capitalization to achieve our goals. There are many types of mutual fund categories in the market today and thousands of their schemes are available. Each market capitalization scheme has different risks associated with it.
Today we will talk about Midcap Funds in Mutual Funds. In this, you will get the answer to every question about Midcap Mutual Funds, which will include What is Midcap Mutual Fund, How Midcap Funds work and which investors should invest in Mid Cap Funds.
What is Midcap Fund?
Midcap Fund Meaning – Midcap funds are those funds which invest their money in companies 101 to 250 according to the market capitalization. These companies are mid cap companies.
If the total outstanding shares of a company are multiplied by the current share market price (CMP), then the market capitalization of the company comes out.
Thus, most of the investments of mid cap mutual funds are in mid cap companies only. Mid cap mutual funds have to invest minimum 65% in mid cap companies. While the rest they can invest in debt, small cap, large cap.
How do Mid Cap Funds work?
Every mutual fund whether it is an equity mutual fund or a debt mutual fund generates returns to the investors in their asset class. Similarly, for mid cap mutual funds, mid cap companies generate returns.
A mid cap company is a company that falls between large cap and small cap. These companies are already established in the market and are looking for further growth.
What is the risk involved in Mid Cap Mutual Funds?
Since most of the investments are in Mid Cap companies, Mid Cap Funds carry more risk than Large Cap Funds while less risk than Small Cap Funds.
Mid cap companies are established in the market, so they have less risk than small caps. But still, midcap companies have a long way to go, in which they are looking for stability, hence they carry more risk than large caps.The risk in equity funds is always less in some and more in some.
Why should one invest in Mid Cap Funds?
Mid Cap Funds are highly attractive due to their returns. Midcap companies have the potential to deliver superior returns along with growth over 8 to 10 years. The midcap companies which are able to achieve success in future can also fall in the large cap category depending on the market capitalization.
Along with the growth potential in mid cap mutual funds, there are also risks, which we should keep in mind while selecting mid cap. Investing in midcaps brings aggressiveness to your portfolio which helps you to get high returns. Hence, you can keep a midcap fund in your portfolio to diversify your portfolio and get high returns.
How much return do mid cap funds give?
Mid cap funds are quite attractive in terms of returns. Mid cap funds have high growth potential, hence they also have high return potential.
Midcap funds give good returns as compared to large cap funds. I am sharing with you the returns of some popular midcap mutual funds –
Axis Midcap Fund – 20.68% (return since launch)
HDFC Midcap opportunities Fund – 20.16% (return since launch)
ICICI Prudential Midcap Fund – 19.72% (return since launch)
Thus midcap funds have seen returns of 20% in the long run which is quite attractive.
Who Should Invest in Midcap Funds?
Midcap category Mutual Funds come with high risk and also good return potential. If you are willing to take more risk then you should definitely invest in mid cap funds. But in this you have to set long goals because in short time they can give you loss.
Midcap investment will not be a good option for the person who is nearing his retirement life or has retired. Thus, investors who can invest for a long time should invest in midcap mutual funds.
Advantages of Midcap Funds
1. Higher Returns Than Large Cap Funds
The biggest advantage of investing in midcap funds is that they can give you higher returns over a longer period of time than large cap funds. The reason for this is that large cap funds invest in large companies which have become stable. They no longer have great growth potential.
2. Lower risk than small cap
If you do not want to invest in small cap funds with high risk for good returns, then you can invest in midcap funds. These funds are less risky than small cap funds and also have the potential to give good returns.
What are the factors to be kept in mind while choosing a midcap mutual fund?
1. Evaluate the performance of the fund
A good mutual fund is considered to be the one that outperforms its peers and benchmark not only in the bull market but also shows the least downside in the bear market. You should get the information about your midcap returns, ratings, fund manager etc. of the last few years in a proper way.
2. Duration of Investment
Equity investments can be quite volatile in the short term. Therefore, you should invest in mid cap funds only when you are ready to invest for 8 to 10 years.
It is not that all midcap companies are ready to become large cap companies. Some of those companies even go bankrupt/bankrupt. Mutual fund investments in such a company are always at risk. So invest in midcap funds only when you are ready to take the risk.
4. Your Age
Midcap funds come with high risk, so this mutual fund category is best for young investors. The advantage of having more time to invest is that in the long run the risk is completely reduced.
5. Expense Ratio
High expense ratio eats up your returns. Therefore, while choosing a midcap mutual fund, keep in mind the expense ratio. Also, to save the expense ratio, always invest in direct plans of mutual funds.
6. Don’t invest in NFO
Don’t invest in any NFO (New fund offer) whenever it is launched. Whenever a new fund is launched, we cannot evaluate it in any way. NFO can prove to be more risky for you.
Funds that you can test with data can be a good choice.
How Much Tax Are Taxed on Midcap Funds?
It is always necessary to take care of taxes while investing as our actual returns post tax are always lower. Therefore, it is important for you to be aware of the taxes levied on midcap funds. The tax on equity funds depends on the tenure of your investment.
Short Term Capital Gain (STCG) – If you sell your investment within 1 year from the date of investment and you make any profit then it will be taxable under STCG. You have to pay this tax at the rate of 15% on the profit.
Long Term Capital Gain (LTCG) – If you sell your investment after 1 year from the date of investment, then you have to pay LTCG @ 10%. Long term capital gains up to Rs 1 lakh are tax free. You have to pay tax on the profit above that.
Conclusin (What is Mid Cap Fund)
Friends, to diversify your portfolio, you must have a midcap mutual fund in your portfolio. These give a perfect balance to your risk and returns.
I hope you liked this information about What is Midcap Funds. You can ask your questions to us through the comment box.