If you’re searching for some of the best mid-cap mutual funds in India, this post is for your. Here, we have listed the best 5 mid-cap funds along with benefits and taxation of mid-cap mutual funds.
What is a Mid-Cap Mutual Fund
Mid Cap mutual funds are investment fund houses, that park at least 65% of their investment in mid-cap (medium capital) companies in order to gain returns from the growth of these companies.
As per SEBI, mid-cap companies are those ranked from 101 to 250, based on their market capitalization. Market valuation of mid-cap companies ranges from above 5000 crores to less than 20,000 crores.
Best Mid-Cap Mutual Funds in India
Here we have listed the Top mid-cap mutual funds in India:
| Mid-Cap Fund Name | Return (%) | Return (%) | Return (%) | Return (%) |
| 1 year | 2 years | 3 years | 5 years | |
| Quant Mid-cap | 16.64 | 35.81 | 36.64 | 20.18 |
| Motilal Oswal Mid-cap funds | 15.14 | 34.39 | 25.31 | 13.98 |
| HDFC Mid-cap | 14.03 | 58.75 | 96.52 | 7912 |
| Edelweiss Mid-cap Fund | 4.76 | 25.33 | 26.22 | 12.86 |
| Kotak Emerging Equity Fund | 6.03 | 57.68 | 93.75 | 90.77 |
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.
Mid-Cap Mutual Fund: How does it work?
As you invest your money in Mid-cap funds, it is used to purchase stocks of mid-cap companies, hold them, and sell at a higher price to generate returns.
But it’s not as easy as it sounds. There are plenty of companies with different valuations, businesses, a record of profit and loss, potential for growth, etc. Other than these, one needs to keep a keen eye on the market and macroeconomic activities to decide when to purchase and sell a stock.
Mid-Cap Funds: Taxation
Short-term Capital Gains tax: If you sell your mutual funds unit before completing a year, so you will have to pay 15% STCG tax on the total gains, irrespective of your tax bracket.
Long-term Capital Gains tax: If you hold your investment for more than a year, then you will be taxed at 10% at the time of selling. Gains up to one lakh are tax-free.
Mid-Cap Funds: Benefits
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-
- Potentially High Returns
In contrast to large-cap funds, mid-cap funds deliver higher returns as they invest in mid-cap companies that are more financially stable than small-cap companies and less risky. As a result, they are better equipped to survive a market setback.
Compared to large capital companies, these typically operate in high-growth sectors and cater to a specific market niche. This gives mid-cap funds a good balance and higher potential for returns.
- Pocket-friendly
Investors get the flexibility to invest with as little as Rs. 500 thus, minimizing the risk of loss. in case you invest at the wrong time. You can start this by investing through an SIP.
- 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.
Mid-Cap Funds: Disadvantages
- Mid-cap mutual funds park most of their investment in mid-cap stocks, which are subject to volatility because they are market linked. Mid-cap companies are emerging organizations and carry a high risk than large companies. Being less financially stronger than their large-cap counterparts, they could be in a vulnerable position in major business downturns.
- If you are looking for a high return in short term, then mid-cap funds are not for you. These funds usually deliver a high return in 5 to 7 years and so they could disappoint you in the initial years of investment.
Mid-Cap Funds: Things to consider
Before you start investing in any of the above-mentioned best mid-cap mutual funds, we advise you consider the following points:
Expense ratio: This is the annual fee mutual fund houses charge for their services. Usually, it’s between 0.5% to 1.5%. It could impact your profit because it is calculated divided by the total value of your investment in the fund.
Lesser the expense ratio, the more the chances to maximize returns.
Exit load: As the name suggests, mutual fund houses charge this fee when an investor withdraws their investment from the fund house. It is a percentage of your total number of units.
Exit load should be as less as possible so that you can gain maximum profit from the selling.
Track record of mutual fund house: Track record shows the returns that a fund house has delivered till now, and how many times the fund house has performed better than its benchmark. These records are usually available on the websites of mutual fund houses. You can check these track records to opt the one best for you.
Large Cap vs. Mid-Cap vs. Small-Cap Fund
| Criteria | Large Cap Fund | Mid Cap Fund | Small Cap Fund |
| Investment risk | Less than Mid-Cap and Small Cap Funds | Highly to moderately risky | Highly risky |
| 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 |
Mid-Cap Funds: 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
Best Mid-Cap Funds: FAQs
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
Mid-cap mutual funds invest in mid-cap companies, which are emerging organizations and not as financially strong as large-cap companies. So yes, mid-cap stocks are highly volatile but not as risky as small-cap stocks.
Since mid-cap funds invest in equities; experts say one should stay invested for at least 5 to 7 years to gain maximum returns from the fund.
Best 5 mid cap funds in India are: Quant Mid-Cap Fund, HDFC Mid-cap, Kotak Emerging Equity Fund, Edelweiss Mid-Cap Fund and Motilal Oswal Mid-cap Fund.
Mid-cap funds are risky. 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
