KNOWLEDGE CENTRE Mutual Funds Investment Guide / Should You Invest In Mid-cap Funds?
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Should You Invest In Mid-cap Funds?


What is the role of mid-cap funds in your portfolio?

With an increasing awareness of mutual funds across the country, a large number of investors are looking to invest in mutual funds for a number of reasons. Apart from the high returns and low risk, mutual funds offer diversification and ensure high liquidity. Based on the financial goals of an investor, he/she chooses a particular fund.

Fund managers handle your investment portfolio to ensure that the risk is diversified and the return is high. A number of funds invested in equity and mid-cap play a prominent role in the same.

What is the importance of mid cap funds in your portfolio?

Mid-cap funds deliver high returns when the market goes up. Owing to their high returns, investors are attracted towards the fund and these are usually their first choice. Nevertheless, due to an adverse impact of the market on mid-cap funds during a market crash, investors are unable to decide whether they want to stay away from them or remain invested in them. Here are some good-to-know facts about mid-cap funds before you invest in them:

Understanding mid cap funds

Risk

The funds are highly volatile in nature. They carry a huge market risk, although they deliver exceptional profits. If you have a high risk appetite, you may invest in mid-cap stocks. With an investment in large-cap equity, the fall in the scheme may be prevented, but the same is not possible with mid-cap. With a higher return, the investment also carries a high risk. Weigh your financial goals and risk appetite before making a decision. Invest in mid-cap equity funds if the market volatility does not affect you much and you plan to remain invested for long.

Performance

Before making an investment decision, it is important to learn about the past performance of a particular mid-cap fund. The outperformers in the scheme have witnessed the biggest fall with the market crash; hence the average performance of the fund should be compared for a period of three to five years. The past performance may not be the sole indicator for a decision to invest. There have been events in the past when the fund has tremendously performed for a few years and saw a huge fall with a market crash. If you plan to remain invested for a long duration, you may choose to invest in them because over a long period of time, the highs and lows of the market are smoothened out.

How to invest in Mid-cap schemes?

The different mid-cap schemes invest across different securities and sectors in order to optimize returns. Some funds invest in small-caps as well as mid-caps while some choose to hold large-caps. The strategy followed by the fund house will have an impact on the portfolio. The returns vary according to the tenure and sector of investment. In order to diversify the risk, it is ideal to invest across different sectors, thereby reducing sector-specific risk.

If you only look at the performance and return of any particular fund, investing into amid-cap fund is a good choice. However, it is advisable to remain invested for a longer period of time in order to gain from the market movement. Short-term investments may either lead to high returns or give you drastically low returns.

Every investor should make investment decisions based on their risk appetite and long-term financial goals. If you choose to hold mid-cap in your portfolio, you need to ensure that the exposure to the same remains 25 to 30 percent in order to keep it productive. Those investors who prefer to invest a higher amount in the same need to keep in mind that their risk exposure will also be on the higher side. Invest in mid-cap equity funds if it is favorable for your financial goals and if you are ready to bear the risk. You may set up a Systematic investment plan (SIP) and invest a fixed amount every month towards your portfolio.

Gaining information about the fund you choose to invest in is very important in order to make the right investment choice. That’s where Angel Bee comes to your help. It offers a mobile application that will help you make the right investment decisions. The user-friendly mobile app features an ARQ investment engine that runs on scientific algorithms and is free of any human bias. The app offers personalized investment recommendations after taking into consideration your requirement, your risk appetite, and your current financial condition.


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