Mid-cap funds have been attracting substantial investor interest, especially in the last three years. The historical trends are proof that, in various quarters, mid-cap funds have outperformed small and even large-cap funds. And, this is true during fluctuating market conditions as well.
Anyway, a sure-shot way of diversifying your financial portfolio is by investing your corpus in varied types of mutual funds. For this, mid-caps are a great choice!
A quick recap on mid-cap funds
Mid-cap funds are a type of equity mutual funds that invest their majority corpus in stocks of mid-sized organisations. The companies that SEBI ranks between 101 to 250 (as per their market capitalisation) fall in the mid-cap gamut.
Mid-cap companies fall somewhere in between large and small-cap organisations and have an observed tendency to grow faster than large or blue-chip establishments. And, when they do, your mid-cap fund returns go up substantially.
How to pick your mid-cap fund?
Are you planning to include mid-cap mutual funds in your financial portfolio? Well then, here are 3 expert tips to guide you through the selection process:
Fix investment goals
Remember that mid-cap funds can offer exceptional returns, but they are also considered moderate to high-risk investments. This being said, they often tend to perform well if you have an extended investment horizon.
Simply put, the longer you stay invested in a mid-cap fund, the more profitable it is. Therefore, look for mid-cap funds that match your investment horizon perfectly. It can be 3 years or 5 years or longer, depending on the kind of commitment you’re willing to provide.
Additional Read: Multi-Cap or Flexi Cap which Fund is better suited for you?
Check track record
A critical thing to check when selecting a mid-cap fund is its track record or historical performance. Be sure to look for rolling returns across different time durations to figure out how a fund is performing.
However, studying up so many values for just one fund can be overwhelming. So, look for the performance of a particular fund at the 1-year, 3-year, and 5-year mark.
Study the market capture ratio
A fund’s market capture ratio is a critical metric, but it isn’t as talked about as it should be. However, we opine that you must study it before investing in a mid-cap mutual fund. The metric of market capture ratio informs investors about a fund’s performance, especially when the market was down and also up.
If you’re not a do-it-yourself investor who wants to invest in a mid-cap fund, quiz your fund manager about a fund’s market capture ratio before shortlisting it.
Additional Read: What are Large Cap Funds? How are They Different from Mid Cap?
Over to you
Mid-cap mutual funds work wonders for investors looking for diversification, can stomach a bit of risk, and have a long-term investment horizon.
If you’re one such individual, apply for some of the best-rated mid-cap mutual funds on Tata Capital Moneyfy app – an online digital portal for several financial instruments. Through Moneyfy, we extend a myriad variety of mutual funds, ranging from debt to equity to hybrid ones. You can also start SIPs or invest in insurance instantly through our portal.
Visit our website or mobile app and get started today!