What are the qualities that make mid-cap mutual funds worth your investment?
The wide variety of Mutual Funds schemes makes them popular but confusing investment options. Thankfully, the SEBI has classified Mutual Funds into various categories and sub-categories. Of these, Mid-Cap Mutual Funds belong under the broader category of Equity Mutual Funds. Let us find out what is Mid-Cap Fund, and the qualities to look for while choosing the best Mid-Cap Mutual Funds.
A Mid-Cap Mutual Fund is typically an open or close-ended Equity Mutual Fund scheme that predominantly invests in stocks of Mid-Cap companies. These companies are listed between 101 and 250 in terms of market capitalisation. Mid-Cap Mutual Funds invest a minimum of 65 per cent of their assets in equity and equity-related instruments of Mid-Cap companies. In contrast, the other 35 per cent may be invested in large and small-cap companies or may vary based on specific schemes.
With over 250 Mid-Cap companies listed on the stock exchange, selecting the best Mid-Cap Funds can be challenging. Instead of investing based on random lists featuring fund names, you should look for specific qualities to determine the best Mid-Cap Mutual Fund. Here is what you should consider.
While investing in any market scheme, the first thing you should check is the fund’s past performance. Past performance does not just mean how the fund performed in the last 1-2 year market cycle but over the years. Check if the supposed best Mid-Cap Fund showed stability and endurance during volatile market conditions over you should first check, seven, or ten years. If it did, you have a winner on your hands.
Fund managers make all the decisions regarding stock selection, asset allocation, redeeming funds, and more. As such, you must research the management style of the fund manager, how a fund has performed under the manager, or any other funds handled by the manager over the years, to check if you have a winning fund in your hand.
There is no point in investing in funds if you share a significant part of your profit in administrative costs like commission, fund management charges, entry and exit load, etc. The best Mid-Cap Mutual Funds are those that have relatively lower expense ratios, as they put more profits in your pockets.
You must also consider certain personal factors such as investment objectives, preferred investment durations, and, most significantly, risk appetite. These factors help ascertain whether a supposedly best Mid-Cap Mutual Fund is indeed right for you. If you are a conservative investor and invest in a fund showing promise in performance but putting your capital at risk, it may not be worthy of your investment.
Now that you know what is Mid-Cap Fund, and the qualities that make a fund the best, you can consider investing. Mid-Cap Funds are considerably safer than Small-Cap Funds but riskier than Large-Cap Funds. As always, you must consider your risks before investing.
Download digibank to explore the different mutual funds on offer.
*Disclaimer: This article is for information only. We recommend you get in touch with your income tax advisor or CA for expert advice.