Depending upon market capitalization, the various companies have been categorized into three groups – small-cap, mid-cap and large-cap. Market capitalization is simply the calculated value of the company, which is found out by multiplying the share price of the company with their total outstanding number of shares. If you want to know in detail about the mid-cap mutual funds, read on to find out.
What are mid-cap funds?
When the mutual funds are being invested in mid-cap companies, then the funds are termed as mid-cap mutual funds. According to the latest rules, stocks that fall between the range of 101 to 250 with respect to market capitalization are defined as the mid-cap segment.
Benefits of mid-cap funds
Some of the benefits of investing in mid-cap equity fund are as follows –
- The history of performance of mid-cap stocks clearly says that they have outperformed the large-cap ones every time.
- Being volatile, mid-cap funds will pose you with several growth opportunities.
- Very lesser analyst coverage is given to mid-cap funds as compared to the large-cap funds.
Things to consider before investing in mid-cap funds
There are some things that you should definitely keep in mind before you invest in mid-cap mutual funds and they are described below –
- Fund Performance – Keeping in mind the bearish and bullish market cycles, you must always check what the performance of the mid-cap fund is before investing your money in it. You will have to do thorough research in order to find the companies with greater potential as the mid-cap fund sector is yet to be analyzed properly.
- Your Age – Yes, you have heard it right! Your age plays a role if you are deciding to invest in mid-cap funds. This is because whenever you are investing in an equity fund, you will be able to realize its full potential only if you are young and you have your entire life ahead of you. But if you are a retired person or someone who is about to retire in a couple of years, a balanced fund would be a far better option for you.
- Investment Period – This is related to the previous point as for proper returns, you need to make a long-term investment, for example, about 10 years. This is mainly due to the volatility of the mid-cap funds in a short period.
- Expense Ratio – There will several fees and commissions attached to your mid-cap fund. You must always look out for funds that have a lower expense ratio.
- Weight Your Risk Appetite – The risk associated with mid-cap funds is not quite high. If you are up for some high-risk investment, only then should you invest in mid-cap funds.
- Quality Fund Manager and Fund House – An expert fund manager and a highly efficient in-house research team of a fund house can highly determine your quality of investment.
- Tax Planning – Have a look at all the tax saving options that you can have with mid-cap funds.
It is necessary that you keep all these factors in mind if you want to avoid devastating results from your mid-cap fund.