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Best Mid-cap Funds to Invest

Many professionals are caught in the monthly life-cycle of income, earn, pay debts, spend and then struggle till the next salary date. To get out of this, some investors do make ill-informed decisions about investments. Instead of waiting till tax filing season is upon you (which is more often the case), we recommend you draw a realistic investment plan. Make a list of your financial goals, the money you can keep aside each month and the risk you can afford. If you have some experience with investments, you will already know (and understand), there’s always room for uncertainty when it comes to returns. We at Angel BEE try as much as possible to guide and inform our investors of the best options available to them.

Investing in Mutual Funds has become popular over the last 2 decades, there are primarily two reasons: comparatively a lower risk (from direct participation in stocks) and high returns. There’s lower risk in mutual funds because of a combination of options and there’s a possibility of high returns if you choose to invest in equity-oriented mutual funds.

Equity-oriented mutual funds comprise of individual stocks put together strategically. These strategies are based on investors’ financial goals and their capacity to bear the risk. We understand, each investor is different and not everyone has the same financial goal. Be it 3 years, 5 years or more than 7 years, we try to recommend the best equity-funds for you.

There are 3 broad groups in which equity funds are classified, they are large-cap, mid-cap and small-cap. This grouping is made based on a company’s asset size or ‘market capitalisation’ (market-cap). Market-cap is the valuation of the company based on its current share price and total outstanding shares. Large-cap companies are ranked among the top 100 in Indian stock exchanges, mid & small-cap follow large-cap stocks in that order.

Mid-cap funds are portfolios in which the asset composition is primarily stocks of mid-cap companies. Mid-cap companies are ranked among the top 100-250 stocks in India. These are well-established companies with an asset size of between ₹5,000 and ₹20,000 crore. Mid-cap funds attract investors looking for higher returns and have a moderate tolerance for risk.

The best mid-cap mutual funds have a pick of the most reliable mid-cap stocks. These stocks are of companies which have a higher potential for growth and expansion. During bullish (or positive) market cycles, the NAV of these stocks tends to outperform the benchmark.

Mid-cap Mutual Funds

Market experts and seasoned investors consider mid-cap companies to be future leaders. With the right business strategies and sound management, some mid companies are perceived to have the potential to move up to become large-cap ones. This potential is evident from the quick response to change and the eagerness to explore new business avenues for expansion.

The best mid-cap funds enhance gains in equity markets. If you have a longer investment horizon (more than 5 years), these funds tend to give you better returns than even large-cap funds. The reason is, these funds have a stronger potential to create wealth. If you want to compound your wealth and do not panic when you see the NAV of stock (in your portfolio) drop drastically, you’re the perfect potential investor for these types of funds.

Some mid-cap companies cater to new or niche markets, this makes them more responsive to changes. They also are open to new ideas and are constantly innovating their products, services or strategies. Having a stock of these companies in your portfolio may make it seem volatile, however, they tend to perform better than large or small-cap stocks. In some cases, stocks of these companies have jumped 5 times in a 5-7-year period.

Multi-Cap Funds

Multi-cap funds are simply those which have an asset composition of large, mid and small-cap stocks. Why should you invest in multi-cap funds? These funds give the protection of steady growth and the advantage of high returns. If you have some investment experience and are willing to take some risk, you can choose a multi-cap fund which has a greater composition of mid-cap stocks.

There are many types of multi-cap portfolios available, some are more tilted toward large-cap stocks, some have more mid-cap stocks. If your multi-cap portfolio has more mid-cap stocks, you will see regular fluctuations in NAV. This is because mid-cap stocks respond quickly to market corrections. In a bullish (positive) cycle these stocks will exceed expectations of returns on investment. On the other hand, in a bearish (negative) market, some of these stocks tend to spiral downward. Though this seems volatile and risky, the rate of return on these stocks still tends to be higher than the rest. Here’s our list of the best Multi-Cap funds:

Large & Mid-cap Funds

Large and Mid-cap funds are specialised portfolios comprising an 80:20 ratio of each type. This means, if the fund type is mainly large-cap, 80% of its corpus will be allocated to large-cap stocks and 20% will be allocated to mid-cap stocks.

If you’re looking for companies which are innovative, always growing or have scalable expansion strategies, we recommend a portfolio with 80% allocation in mid-cap stocks. It may appear risky, however, the balance 20% of large-cap stocks in this type of portfolio will balance your losses in case of economic downturn. Here’s our list of the best large & mid-cap funds:

Top Mid-cap Funds to Buy in 2019

The Indian stock market has been turbulent in 2018, however, this hasn’t dampened investment in mid-cap funds. We recommend investing in the best mid-cap mutual funds in 2019 because they have the potential to give better returns in the long-run. In the past these funds have been known to outperform the benchmark even through highly volatile price movements.

Market experts and fund houses usually do not recommend investing in these funds if you’re new to equity. You need to have a huge appetite for risk and be patient in times of market corrections. We understand that any small setback or negative market development affects mid-cap stocks tremendously. However, the best players in this group are the ones who have excellent business acumen and are constantly innovating. These qualities continue to attract more investors to buy their stock. This and other contributing factors are also an indicator of growth, which means these stocks may move up the list and make their place among large-cap stocks. Here’s our list of Top 20 Mid-cap Funds.

Factors to Consider Before Investing in Mid-cap Funds

There are two crucial things to consider before investing in mid-cap mutual funds.

  • Investment Horizon: The best mid-cap funds may give you great returns within the lock-in period (3 years). The benchmark ones, however, may even exceed expectations if you hold on to them for at least 5 years. We recommend a realistic and longer-term outlook for investing in these funds. All of these companies are constantly looking for opportunities to grow and expand. Any new project takes a few years to show some tangible signs of progress. You must be patient and give your portfolio time to grow and create wealth in-line with your financial goals.

  • Risk Capacity: Mid-cap funds are not recommended for conservative investors who panic at the slightest fluctuation in NAV of a stock. You need to have a moderate (if not high) capacity to bear the risk. Mid-cap stocks have known to be responsive to market corrections, making them more volatile than large-cap stocks. This is risky in bearish markets, however, in a bullish market, your losses do tend to be recovered.

Market movements play an important role in the performance of mid-cap funds, however, taking timely and calculated investment decisions can get you quicker returns on investment and create more wealth for you in the long-run.

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