Why Mid-Cap Mutual Fund

Mid-Cap Mutual Fund Its Feature, Advantage and Disadvantage

Mid-cap mutual fund is a type of mutual fund which invests money in medium and small sized companies. There is no specific classification of the size of the company. But according to a general classification, a medium-sized company has a market capitalization of more than Rs 500 crores but less than Rs1000 crores, and a small-sized company has a market capitalization of up to Rs 500 crores. Mid-cap funds are high-risk funds. They generate high-returns if there is a positive movement in the index. Mid-cap are readily available for investment because they belong to less recognized companies. The growth opportunity is higher in mid-cap funds when compared to large-cap funds.

Regular investors and foreign investors have switched to mid-cap companies from large-cap companies because the market prices of large-cap funds are continuously increasing. Mid-cap companies are those companies which are under research by the investors. They are yet to be identified in the market. So the growth potential is always higher in funds provided by mid-cap companies. The investors also have the chance of earning double than their expectations at times. These companies are also termed as "Wealth Creators" by some investors. They also have the capability to become a large-cap company if these companies are regularly progressing. But mid-cap funds are volatile in nature so they have the tendency to fall just like a pack of cards when the market crashes. So it is important to be cautious when you decide to make investment in a mid-cap mutual fund. However, it is a good investment option if an investor wishes to have a diversified investment portfolio.

According to a mutual fund tracking entity, it is believed that mid and small cap mutual funds have generated an average return of 19.71% for three months, which is higher than large capability mutual funds that gave an average return of 14.86%. It is good to compare both the types of mutual funds because they are opposite to each other. Sometimes the mid cap and small capability companies follow the footsteps of large capability companies, but sometimes it is exactly the opposite. However, it is truly believed by many experts and investors that mid capability and small capability funds can boost the performance of the investment portfolio.

At times the mid and small cap funds tend to outperform large cap funds, but that does not mean that an investor should substitute all the large cap funds by mid and small cap funds in the portfolio. The upswing in the mid and small cap companies in the recent times is only because of lower valuation made in December 2011. However, the difference between the valuations of large and midcap companies has been reduced substantially. The large cap funds are valued lower than their average returns in the long run. Therefore these funds are more attractive for investment than mid cap funds when the funds are compared only on the basis of its value. But if your investment objective is high-growth than mid and small cap funds are a good option.

Mid cap fund may performance better than large cap funds in the future because they are undervalued funds. Investors should buy mid cap funds after making a Systematic Investment Plan (SIP) as it will help them to minimize the timely risk especially when they are planning for a long-term investment.

Features of Mid-cap Mutual Funds
Below mentioned are some of the basic features of a mid-cap fund.

They provide long-term growth potential

The market price of mid-cap funds fluctuates frequently in a short-term

These funds tend to reinvest the earning into the company in order to boost the company growth

They give very little dividend to their investors.

They are volatile in nature

They are less risky than large-cap mutual funds

These funds belong to companies that are less recognized in the stock market.

Advantageous of Mid-cap Mutual Funds
The benefits of investing into a mid-cap mutual fund are mentioned below.

They belong to companies that are under research by the market so they have high-growth potential.

These funds may provide high returns if the market price of the fund is continuously rising. It might generate returns which are double than your expectations at times.

They are considered to be a low-risk type of mutual fund when compared to large-cap mutual funds.

Mid-cap mutual funds have more chance to prosper than large-cap mutual funds

Mid-cap and small-cap funds are low profile and safer than large-cap mutual funds. They are a good option for investors who's investment objective is to have long-term benefits rather than short-term gains.

Risk of Investment
Mid-cap funds belong to those companies which are not well know in the stock market so chances of many investors buying the funds of that particular company are quite less. Secondly mid-cap companies are more prone to the risk of manipulation and fraud because these companies tend to neglect the risk control measures. Another risk involved in a mid-cap mutual fund investment is the risk of default. This is an uncontrollable risk which comes with every type of stock market investment. Risk of default is the risk of interested rate fluctuation and sudden changes made by the government in the economic and financial policies of the country.

Best Performing Mid-cap Mutual Funds in India
If you are thinking of making an investment in some mutual funds, then here is a list of some of the best performing mid-cap mutual fund companies in India.

Birla Sun Life MNC Fund (G)

HDFC MidCap Opportunities Fund (G)

SBI Magnum Emerging Busi (G)

Birla Sun Life Dividend Yield Plus

IDFC Premier Equity-A (G)

Tata Dividend Yield

HDFC Equity

HDFC Growth

Tata Equity PE

Quantum Long Term Equity

The investors should read the offer document provided by the fund carefully before finalizing the investment decision. According to the experts, the mid and small cap companies perform better and rise faster when the market is returning back. They return to the phase of growth when the economy comes back to the normal position. That is the reason why more investors seek to invest in mid cap or small cap companies. These funds are less risky and do not harm your portfolio as much as large cap funds do.

Mid-cap mutual funds are best investment option for those investors who are not risk-takers. These funds generate moderate returns over a period of time. They are considered best for long-term investment rather than short-term investment. This is because mid-cap funds take a long time to perform well as they belong to a less recognized family of mutual funds.