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Mid Cap Funds

Mid Cap funds are mutual funds that invest in stocks of mid-sized companies, as defined by the SEBI based on their market value. These funds offer a good mix of risk and potential returns. By having a diverse range of stocks from different sectors and being managed by experienced professionals, Mid Cap funds can provide strong returns over time. 

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Mid Cap Funds

What are Mid Cap Funds?

What are Mid Cap Funds?
October 09, 2024

Table of Content

 

In this policy, the investment risk in investment portfolio is borne by the policyholder

Mid Cap funds are mutual funds that allow investment in equity-related investment tools of mid-cap companies. The Securities and Exchange Board of India (SEBI) defines mid-cap companies as those companies that are ranked between 101 and 250 on the basis of market capitalisation. Mid Cap Funds provide a good risk and returns balance. By creating a well-diversified portfolio of stocks across a variety of sectors and a good fund management professional, these funds can provide great returns over the investment period.

How Do Midcap Funds Work?

As per SEBI guidelines, Mid Cap Funds must invest 65% of their assets in mid-cap stocks that have been listed.  
Investors in India have the option of choosing between passively managed as well as actively managed mid cap funds. In case of actively managed mid cap schemes, the fund managers are responsible for selecting midcap stocks and mirroring an index such as the NIFTY Midcap 50 Index. This helps in providing returns that match the performance of the Index. It also makes Mid Cap Funds an excellent investment plan for salaried person.

Features of a Mid Cap Fund

Mid Cap Funds are one of the best investment plans for salaried person. Here are some features that separate these funds from other investment options:

Long-term Investment

These funds are affected by everyday market fluctuations. As a result, investors consider them as long-term investment plans and invest for a period of seven years or more. This allows the fund to overcome the impact of market fluctuations and offers excellent returns over the investment period. The best time to invest in a Mid Cap Fund is when the market is expected to move positively.

Advantages of SmallCap and LargeCap Companies

Mid Cap Funds provide the investor with the stability of large cap companies, and the growth potential of small cap companies. This helps the investor diversify their portfolio and balance their risk.

Passive and Active Funds

Active funds are managed by a professional fund manager who actively buys and sells stocks to offer good returns. Passive funds track indices such as the Nifty Midcap 50 Index to provide returns.

Risk Profile

Investors with a moderate risk appetite are advised to invest in Mid Cap Funds. This is because they have a higher risk profile as compared to other large-cap funds but lower as compared to small-cap funds.

Benefits of Investing in Midcap Funds

Mid Cap Funds are an excellent investment plan for salaried person. Let us look at a few of the benefits they offer:

Wealth Creation

When it comes to financial planning, financial growth and investements go hand-in-hand with each other. Mid Cap Funds have good growth volumes and profit margins that attract investors. These funds have a higher rate of return as compared to large cap funds and are a great option for investors seeking wealth creation in the long term.

Liquidity

Mid Cap Funds allow investors to easily redeem and buy equity funds and do not have a lock-in period. This helps investors buy the desired units of funds  at their net asset values.

Inflation beating Returns

As of August 2023, India’s retail inflation is 6.83%. Mid Cap Funds are one of the few good investment options for salaried employees as they offer inflation beating rates of return in a longer investment tenure.

Flexible Amount of Investment

Mid cap funds are the best investment plans for salaried person as they allow investors to have a flexible investment amount. The minimum investment amount for Mid Cap Funds is Rs 500 per month for a Systematic Investment Plan (SIP) and Rs 5000 for a lump sum investment.

Diversified Portfolio

Mutual fund schemes are a good way to create a balanced and diversified portfolio. This is because fund managers try to invest in mid-cap stocks belonging to a variety of sectors. This helps to decrease the overall portfolio risk.

Fund Management Professionals

Mid Cap Funds are usually managed by professionals who have years of experience and are qualified to do so. The performance of the fund depends on their expertise, research and investment decisions.

Alternatively, if wealth creation, portfolio diversification, and inflation-beating returns are on your mind, you can also consider HDFC Unit Linked Insurance Plans (ULIPs).

They combine the benefits of investment and life insurance in a single plan. They offer the potential for wealth creation through a variety of fund options, including mid-cap funds, while also providing life cover. This dual benefit makes HDFC ULIPs an attractive option for those seeking to grow their wealth with the added security of life insurance, ensuring financial protection for loved ones.

Some of the good ones to consider could be the HDFC Life Sampooran Nivesh, which lets you choose from 13 different Funds to optimise your investment returns or the HDFC Life Smart Protect Plan which features a minimum Assured Benefit in the form of a capital guarantee1.

Why Should You Invest in a Mid Cap Fund?

Mid Cap Funds are one of the many investment options for salaried employees. Here are a few reasons why you should invest in mutual funds:

Good Returns

While Mid Cap Funds have a relatively higher risk profile than large-cap   funds, they offer much better returns. These funds are a good investment in case of favourable market conditions as they have higher growth volumes and are a good option for a one time investment plan.

Balanced Portfolio

Mid Cap Funds provide the investor with the growth potential of small-cap   funds and the stability that comes with large-cap mutual funds, making them the perfect choice for a savings plan.

Taxation Rules of Mid Cap Funds

Mid Cap Funds are equity-based and are therefore, treated and taxed the same as equity   funds. The returns earned on mid-cap schemes are taxable depending on the investment tenure of the units.

  • Short-term capital gains are earned on an investment tenure of less than a year and are subject to a tax rate of 15%.
  • Long-term gains of more than Rs 1 lakh are subject to a tax rate of 10%. However, long-term gains of less than Rs 1 lakh are non-taxable.

FAQs on Mid Cap Funds

Q. What are mid-cap funds?

Mid Cap Funds are a type of mutual fund that helps investors to invest in equity-related investment options of mid-cap companies. These are companies that have a market capital between Rs 5,000 crore and Rs 20,000 crore.

Q. How do mid-cap funds work?

Mid Cap Funds invest 65% of their assets in mid-cap companies while the rest is invested in other debt and equity options as per the fund manager’s research and expertise.

Q. What are the benefits of investing in mid-cap funds?

One of the main advantages of investing in Mid Cap Funds is that they provide the investor with the stability that comes with large-cap companies and the growth potential of small-cap companies. This helps the investor diversify their portfolio and balance their risk.

Q. Are mid-cap funds riskier than large-cap funds?

Yes, mid cap funds are riskier than large-cap funds due to their high volatility. However, they also provide higher growth potential, leading to higher returns.

Q. Who should invest in mid-cap funds?

Investors with a moderate risk appetite are advised to invest in Mid Cap Funds. This is because they have a higher risk profile as compared to other large-cap  l funds but lower as compared to small-cap funds.

Q. How should I select a mid-cap fund?

Selecting a Mid Cap Fund should be done by keeping in mind factors such as your risk profile, the fund’s expense ratio, and the investment strategy. It is also advisable to consult a professional fund manager before making your decision.

Q. What is the role of a professional fund manager in mid-cap funds?

The fund managers are responsible for selecting midcap stocks and mirroring an index such as the NIFTY Midcap 50 Index. This helps in providing returns that match the performance of the Index.

Q. Can mid-cap funds be part of a diversified portfolio?

Mutual fund schemes are a good way to create a balanced and diversified portfolio. This is because fund managers try to invest in mid-cap stocks that belong to a variety of sectors. This helps to decrease the overall portfolio risk.

Q. How do systematic investment plans (SIPs) work with mid-cap funds?

SIPs allow the investor to invest a fixed amount in mid-cap funds. This helps to average out the cost of purchasing the fund over time and reduces the impact of market fluctuations. This makes it easier to achieve long-term financial goals.

Q. What are the tax implications of investing in mid-cap funds?

Mid-cap   fund schemes are subject to capital gains tax. Short-term capital gains are earned on an investment tenure of less than a year and are subject to a tax rate of 15%. Long-term gains of more than Rs 1 lakh are subject to a tax rate of 10%. However, long-term gains of less than Rs 1 lakh are non-taxable.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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1. Guaranteed Benefit is paid on survival during policy term provided all due premiums are paid during the premium payment term. 

HDFC Life Sampoorn Nivesh (UIN No: 101L103V03) is a Unit Linked Non- Participating Individual Life Insurance Plan. Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Life Insurance Coverage is available in this product. For more details on risk factors, associated terms and conditions and exclusions please read sales brochure carefully before concluding a sale. 

HDFC Life Smart Protect Plan (UIN: 101L175V03) is a Unit Linked Non-Partcipating Individual Life Insurance Plan. Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Life Insurance Coverage is available in this product. For more details on risk factors, associated terms and conditions and exclusions please read sales brochure carefully before concluding a sale.  

 The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in linked insurance policies are subject to investment risks associated with capital markets and publicly available index. The annuity amount and NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market/publicly available index and the insured is responsible for his/her decisions HDFC Life is only the name of the Life Insurance Company and product name is only the name of the linked insurance contract and does not in any way indicate the quality of the contract, its future prospects or returns. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.

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