Did you know that you can invest in the best mid-cap mutual fund in the market and take profit home? If you search on the internet, you will find many business stalwarts make money by investing in equity funds. But it is important to know which equity they are investing in.
The best mid-cap mutual fund is quickly becoming a favourite among investors for various reasons. But before we talk about the best mid-cap mutual funds, let us start with what is the best mid-cap equity fund, its key features, and its advantages.
What is a Mid-Cap Mutual Fund
A mid-cap mutual fund is an investment in medium-capital companies. These companies rank from 101 to 250thin the market. The market capitalization of mid-cap companies can range anywhere from Rs. 5,000 Crore to Rs. 20,000 Crore. The best mid-cap mutual fund offers higher returns than the large-cap equity fund.
These mid-cap companies are growing fast and churning profit on every level. Investing in equity-linked securities and shares/ stocks of mid-cap companies results in higher profit if you invest for at least 3-4 years.
When you decide to invest in mid-cap equity, it is essential to assess the company size as it plays a key role in knowing whether the company will stand the test of time or crumble under pressure. Investors with keen eyes find underperforming stocks and invest in them, and once the company starts gaining momentum, the investment becomes successful.
Key Takeaways
- Mid-cap funds offer higher returns in comparison to large-cap funds.
- There is more room for portfolio diversification when you invest in the best mid-cap mutual fund.
- A mid-cap fund is a suitable investment if you have a moderate risk appetite.
- You can hire a fund manager to assist you in investing in a mid-cap fund.
Key Features of Mid-Cap Equity Funds
Before investing in any equity funds, you should consider the key factors to analyze whether you will be on the good end or not. Here are the key features to consider while looking for the best mid-cap mutual funds-
- Investment risk– You need to know how much money you can lose in the worst-case scenario in every investment. The best mid-cap mutual fund will involve less risk.
- Stock performance- The best mid-cap mutual funds can outperform any large-cap mutual fund in the longer run. However, the mid-cap mutual fund is more volatile than the large-cap mutual fund.
- Fund allocation- As per the mandate introduced by SEBI, the mid-cap mutual funds are directed to invest a minimum of 65% in the stocks/ shares and the rest in the mid-cap companies’ equity-related securities.
- Previous market performance- You can interpret the fund’s future performance by gauging past performance. It is necessary to determine the previous performance to estimate whether the prices are going up or it will crash down under pressure.
Advantages of Investing in Best the Mid- Cap Equity Funds
Looking at market performance and the returns received, you will understand that mid-cap funds significantly outperform large-cap equity funds. Maximum people invest in large-cap funds, ignoring mid-cap funds as they are volatile. However, they often forget that the returns received are higher as well.
Here are the major advantages of investing in the best mid-cap mutual fund-
- Pocket-friendly
Investors get the flexibility to invest with as little as Rs. 500, minimizing the risk of loss just in case you invest at the wrong time. You can start this by investing through a systematic investment plan.
- Liquidity
The mid-cap funds are open-ended and can be easily liquidated at any given time. Unlike ELSS, mid-cap funds don’t have a lock-in period. Suppose you have just invested and need a chunk of money out of that investment; you can easily liquidate your shares and transfer the money to your account.
- Opportunity to create a diverse portfolio
Almost every sector has mid-cap companies, including agriculture, sports, automobiles, etc. So if you broaden your horizons, you will get the opportunity to create a diverse portfolio.
- Tax benefits
If you buy a stock or sell stocks from your portfolio, you would get tax benefits for each share. There are short-term capital gains and long-term capital gains. If you sell shares within 12 months after buying them, a 15% tax will be applicable on the capital acquired regardless of the profit or loss.
Whereas if the stock’s holding period is more than a year, a 10% tax will be applicable if the profit earned exceeds Rs. 1 Lakh. If it is under Rs. 1 Lakh, you will be exempted from tax.
How to Invest in Mid-Cap Funds?
Investing in top-performing mid-cap funds is a five-step process. You simply need to follow the steps mentioned below:
– Open the website that allows you to invest in top mutual funds.
– Select the ‘Invest Now’ tab.
– If you do not already have an account, click ‘Register Now.’
– After registering, type ‘Mid-cap funds’ into the search box to see the best-performing mutual funds in the category.
– You can invest directly from the platform by depositing the initial investment amount.
Reasons to Invest in Mid-Cap Funds
- Diversification: Since equity funds invest in a variety of mid-cap stocks and sectors, they are less risky than direct investments.
- Simple to redeem: Open-ended equity funds are easy to redeem based on the units’ current net asset value. Closed-end equity funds have a lock-up period and can only be redeemed through the exchange.
- Professional leadership: Preference for only what confirms one’s beliefs
- Reduced investment amount: Investment in equity mutual funds can begin with as little as Rs. 500.
Risk Involved in Mid-Cap Mutual Funds Investment
Even though investing in mid-cap mutual funds is a fairly simple and safe option, there are a couple of pointers to keep in mind. Below we have mentioned the risk involved in mid-cap mutual funds:
- Mid-caps offer bleak choices in the market.
- They are difficult to benchmark.
- Liquidity risk is an issue for mid-cap mutual funds
Best Mid-Cap Mutual Funds
Mid-cap companies fall in between the capital range of Rs. 5,000 Crore to Rs. 20,000 Crore. They are emerging companies and are a favourite among investors looking for higher returns.
Stock prices of large-cap companies have recently gone up, and now mutual fund houses are gradually shifting toward mid-cap companies. Here are the best mid-cap mutual funds to look out for in 2022.
| Best Mid-Cap Mutual Fund | 3-year return (annually) |
| PGIM India Mid Cap Opportunities Fund | 31.88% |
| Quant Mid Cap Fund | 30.62% |
| Kotak Emerging Equity Fund | 22.86% |
| Edelweiss Mid Cap Fund | 22.43% |
| Mahindra Manulife Mid Cap Unnati Yojna Direct-Fund | 21.84% |
Which One is Better- Large Cap, Mid Cap or Small Cap?
To decide which is better amongst the three, it is necessary that we first discuss what exactly large cap and small funds are. We already know mid-cap funds, so we will skip this one to save you time a little.
As per SEBI, there are different criteria for companies as per their ranking and capital raised. Based on the capital and rankings, these companies fall into the large, mid and small-cap categories.
Large Cap Fund-
Under this, you will get to invest in the stocks and shares of the top 100 companies in the market. These companies have a strong market presence and are leaders in their field. The stocks are highly stable, and the chances of losing the money invested are extremely slim as they are not much volatile.
Small Cap Fund-
They are highly volatile in comparison to the large and mid-cap funds as the companies are still growing and have a market capitalization of less than Rs. 5000 Crore. These companies are also ranked 251st and below that. A maximum of the time, their market presence goes unrecognized as well.
| Criteria | Large Cap Fund | Mid Cap Fund | Small Cap Fund |
| Investment risk | Lesser in comparison to the other two. | Slightly risky | Highly risky |
| Liquidity | Offers good liquidity in comparison to the other two. | Moderate liquidity | Less liquidity |
| Volatility | Lesser volatile | Moderately volatile | Extremely volatile |
| Returns | Steady returns | Higher return than large-cap fund | Can offer the highest return if invested at right time. |
| Growth | Steady market presence | Moderate growth | Higher growth potential |
Taxation Rules of Mid-Cap Mutual Fund Investment
Mutual fund taxation is critical. This is due to the fact that investors invest to earn returns, and those returns are taxable. Mid-cap funds do not qualify for tax breaks under Section 80C of the Income Tax Act. Mid-cap funds’ returns are also taxable. Short-term capital gains (gains made within one year of investment) are taxed at 15%. On the other hand, long-term capital gains are taxed at 10%.
Furthermore, dividends from mid-cap mutual funds are taxed. Dividends are taxed and must be paid by investors at their marginal tax rate. Keep in mind that dividends in excess of INR 5,000 are subject to TDS.
Due to the dividend tax, the dividend option may not appear appealing in the current scenario. As a result, investors must carefully consider which option to select (dividend fund or growth fund) and when to redeem (long term or short term).
On An Ending Note
In the equity fund, the fund managers buy stocks/ shares of mid-cap companies from the capital invested by the investors. As per SEBI directives, all the companies ranking between 101 to 250 will be identified as mid-cap companies.
Apart from mid-cap funds, there are large-cap and small-cap funds as well. The mid-cap companies are striving to become large-cap companies. Hence, investing in the mid-cap company will be more profitable as these mid-cap companies are in the growth phase and will grow rapidly, bringing more capital to the table and into your account.
FAQs
One of the key features of a mid-cap fund is that you can start investing even with Rs. 500. You can start investing in the best mid-cap mutual fund via the Systematic Investment Plan (SIP). There are various SIPs, and you can choose one, depending on your requirements. Some have a lock-in period, whereas some are open-ended, meaning you can transfer the money into your account in case of emergency.
Here is a list of the best mid-cap mutual funds of this year:
– Axis Mid-cap fund
– Tata Mid-cap Growth Fund
– Kotak Emerging Equity Fund
– PGIM India Midcap Opportunities Fund
You should look out for numerous factors while deciding on the mid-cap fund to invest in. Here are some-
Risk for loss
Potential to offer maximum returns
Allocation of fund
Current and previous market performance
The mid-cap fund will deliver around 12.23% annual return in the previous year. It was about 20.54% in the third year, and in the 5th year, the return will be around 11.86%.
Mid-cap funds are more about investing in the shares/ stocks of a growing company that was once known as a small-cap company. The mid-cap equity fund is less volatile than the small-cap equity fund and has more liquidity than the small-cap fund.
As per the news resources, here are the best mid-cap mutual funds for you to invest in
PGIM India Mid-cap Opportunities Fund
Quant Mid-Cap Fund
Kotak Emerging Equity Fund Direct-Growth
Edelweiss Mid-Cap Fund
Mahindra Manulife Mid-Cap Unnati Yojna Direct-Growth
You can refer to the table above to learn more about these funds.
– PGIM India Mid-Cap Opportunities Fund
– Mirae Asset Mid-Cap Fund
– Quant Mid-Cap Fund
– Axis Mid-Cap Fund
– SBI Magnum Mid-Cap Fund
Mid-cap funds are risky for many people since they invest in companies that may grow into large-cap institutions or fail. Therefore, before investing in these funds, investors must be prepared and willing to accept the risk that might come their way.
Also Read: Basics of How to Save Tax
