As an investor, are you looking for a middle ground between high-risk small-cap stocks and more stable large caps? Mid-cap funds are exactly where you must be putting your funds. These stocks offer a great balance between aggressive growth and stability.
In this blog, we have comprehensively discussed how mid cap funds balance risk and high returns for investors.
What Exactly Are Mid Cap Funds?
Mid cap mutual funds invest in companies with market capitalizations of medium-sizes. This usually ranges between INR 5,000 crore and INR 20,000 crore in India.
Mid cap companies are not fully established large firms, but they have seasoned the volatile and uncertain phase as small cap companies.
This makes them an appealing option for investors looking for both growth and security.
Why Should You Consider Investing in Mid Cap Funds?
Here are a few reasons why you must consider investing in mid cap funds.
1. High growth potential
Mid-cap companies have the potential to become key players in their respective industries in the future. While large-cap stocks are stable, they lack the high growth potential as many of them have already reached a point of saturation.
On the other hand, mid cap companies can become large caps in the future. Thus, investors can ride the growth potential over the years.
2. Balanced risk
Maybe, you’re done with the unpredictable swings of small cap stocks. If you still want higher returns with better peace of mind, mid-caps are ideal for you. Generally, they tend to be less volatile but offer a better growth potential compared to large-cap stocks.
3. Diversification
Mid cap funds often spread their investments across a wide range of sectors. Thus, you gain exposure to different segments of the economy. With mid cap mutual funds, investors can manage risk while capturing growth opportunities.
Historical Performance of Mid-Cap Funds
Before investing in mid-cap funds, you must be keen to know about their historical performance. In the long term, mid-cap funds have outperformed large caps. Some of the popular mutual funds, like the Motilal Oswal Midcap Fund, have delivered 34.24% returns in the last 5 years and 22.12% over the last 10 years.
Although mid-cap funds can be volatile during economic downturns or market corrections, the returns can be rewarding. If you are ready to ride out these bumps, the long-term gains make them worth investing in.
During periods of economic expansion, mid-cap companies tend to outperform other segments as they are in growth mode.
Who Should Invest in Mid-Cap Funds?
Mid-cap funds are ideal for investors who are ready to take on more risk. This risk quotient works for them, fetching higher returns in the long term.
So, if you are comfortable with market ups and downs and are ready to lock your investment for a longer horizon between 5 to 10 years, mid-cap funds are ideal for you.
Remember, mid-cap funds can undergo greater fluctuations compared to large-cap funds. If you have a moderate risk tolerance, you can go for these funds.
Wrapping Up
Investors looking to strike a balance between risk and return should diversify their portfolio with mid-cap mutual funds. They offer the growth potential of emerging companies, while being less volatile than small caps. If you are willing to stick around for the long run and endure market turbulence, mid cap funds can fetch you handsome returns.
Look at the historical performance, expense ratio, and market capitalization of the fund before investing. With a well-balanced mid-cap portfolio, you can achieve higher growth without taking on too much risk.
