Investments idea In India

Equity Mutual Funds are a great investment vehicle for investors who are looking for solid returns in the long run. And the USP of https://www.etmoney.com/mutual-funds/equity" target="_blank" rel="nofollow">Equity Funds is that there is something for everyone- irrespective of your risk appetite, investment horizon and financial goal. These funds can be categorized basis four factors – market capitalization, diversification, themes(sectors) and solutions (ELSS). In this article, we will talk about the sub-category – market capitalization with a special focus on mid-cap funds.

Meaning of Market Capitalization

Market capitalization (or cap, as it is often referred to) is simply the market value of a company. It can be calculated by multiplying the number of outstanding shares with the current share price.

Basis the value of market capitalization, companies are further divided into three categories – Large, Mid and Small. Large-cap companies invest in the top 100 stocks and are often the market leaders or big players. The next in line are mid-cap companies. This segment consists of the next 150 stocks (i.e. stocks ranked between 101 and 250) in terms of market capitalization. Small-cap stocks invest in the 251st onwards companies.

What are Mid-Cap companies?

Companies in this category are often experienced players in an industry which is already on a solid growth path or expected to grow substantially. As per the SEBI re-categorization guidelines, mid-cap Funds need to invest a minimum 65% of their total assets in stocks (equity and related instruments) of mid-cap companies. In terms of the risk-return equation, mid-cap companies are placed in between large-cap and small-cap. Though there is no prescribed mandate on the value of market capitalization for mid-cap stocks, generally it lies between 5,000 crores to 20,000 crores.

Investors get attracted to mid-cap stocks as they have the potential for tremendous growth and may give good returns in the medium–long term period.

Key features of Mid Cap Equity Funds

• Growth Potential

Unlike large-cap stocks which are associated with stagnant or slow growth (as they are already at the top), mid-cap stocks are yet to reach their maximum potential. Hence, there is scope for fast growth and higher returns with these equity funds.

• Risk

The 2Rs (Risk and Return) go hand in hand. Mid-cap Equity Funds are riskier when compared to large-cap stocks. This is because in their attempt to grow faster and generate higher returns, they might invest in instruments with a higher risk profile.

• Moderately priced

Mid-cap stocks form the core of value investing. More often, companies with mid-cap stocks tend to be relatively undervalued. Hence, they can be a great addition to your portfolio as a means of wealth creation in the long run (when the market realizes its true worth)

Are mid-cap funds right for you?

Mid-cap funds add a dimension of diversification to the overall portfolio. They are suitable for investors with a moderate risk appetite who can commit to a medium to long-term investment horizon (i.e. 7-10 years). This is due to the fact that most companies in this category are either expanding or capitalizing on new growth opportunities.

It is important to note that mid-cap Equity Funds may be too overwhelming or risky for first-time or inexperienced investors.

Best Mid-Cap Mutual Funds

https://www.etmoney.com/mutual-funds/equity/mid-cap/35" target="_blank" rel="nofollow">Mid-cap Funds react more vigorously to market fluctuations as compared to large-cap stocks. Hence, unlike large-cap stocks, whose performance can be judged fairly accurately from past performance, the same yardstick does not apply to mid-cap stocks. One needs to analyze a wide range of factors (quality of management, growth potential, uniqueness of offerings, etc.) to judge a mid-cap stock.

Here is a list of the top 10 equity funds from the mid-cap category.

• Axis Midcap Fund
• Invesco India Mid Cap Fund
• Kotak Emerging Equity Fund
• Franklin India Prima Fund
• L&T Midcap Fund
• DSP Midcap Fund
• Edelweiss Mid Cap Fund
• Tata Midcap Growth Fund
• Nippon India Growth
• ICICI Prudential Midcap Fund

Final Words

A well-balanced portfolio requires some degree of mid-cap stocks. Good quality mid-cap equity funds have the potential to generate superior returns (even beat inflation) than large-cap stocks in the long run. However, it requires two commitments from investors – risk-taking ability and patience to remain invested for a long duration. As they say, patience bears a golden fruit!