7 mid-cap mutual funds with decent earning potential

The mid-cap sector of the Indian stock market has been showing strong performance for some time now. Mid-cap companies in India generally possess market capitalizations ranging from  ₹5,000 crores to  ₹20,000 crores, positioning them between large-cap entities (top 100 companies) and small-cap firms (all companies ranked below 250th).

In recent years, mid-cap stocks have been surpassing large-cap stocks in performance. This trend may be attributed to factors such as the greater growth potential of mid-sized companies and investors’ pursuit of higher returns relative to large-cap investments.

India’s robust economic expansion significantly benefits mid-cap stocks. This is driven by several factors such as heightened government investment in infrastructure projects, rising demand for diverse products and services, and an increase in consumers’ disposable income. The surge in new retail investors and the widespread adoption of systematic investment plans (SIPs) are key drivers behind the mid-cap rally.

These factors also account for the outstanding performance of certain mid-cap mutual funds, particularly over the past five to ten years, thereby enabling numerous investors to generate wealth within a relatively short timeframe.  

Name of the fund	5-year returns  (in %)	10-year returns (in %)
Kotak Emerging Equity Fund	28.31	23.06
Motilal Oswal Midcap Fund	31.84	23
Edelweiss Mid Cap Fund	30.39	22.37
Invesco India Mid Cap Fund	28.13	21.67
HDFC Mid-Cap Opportunities Fund	28.15	21.30
Tata Mid Cap Growth Fund	27.14	20.92
SBI Magnum Midcap Fund	27.66	20.35

Source: Association of Mutual Funds in India (As of June 24, 2024).

Why invest in a mid-cap fund?

Investing in mid-cap mutual funds in India can be advantageous, contingent upon your specific financial situation. Here are several advantages of investing in mid-cap funds:

Enhanced growth potential: Mid-cap companies are generally younger and in a high-growth stage compared to large-caps. This offers investors in mid-cap funds the opportunity for a greater appreciation in stock prices.

Diversification: Investing in mid-cap funds provides diversification benefits by distributing your investment among various mid-cap companies. This mitigates risk compared to investing directly in individual stocks.

Professional management: Investing in a mid-cap fund allows you to leverage the expertise of fund managers who actively research and select stocks. This saves you the time and effort needed for individual stock selection.

Possibility of higher returns: Large-cap funds have not historically outperformed mid-cap funds. More volatility is nonetheless a result of this.

Lower initial investment requirement: Several mid-cap funds feature lower minimum investment thresholds compared to alternative investment options, enabling you to begin investing with a smaller amount.        

It’s important to remember, though, that mid-cap stocks are frequently more volatile than large-cap stocks. Prices for mid-cap stocks could move more dramatically, so investors need to be ready for potential ups and downs.

Furthermore, investors with a five-to-10-year investment horizon or longer should consider mid-cap funds. With this strategy, investors can ride out market fluctuations and potentially take advantage of the growth prospects presented by mid-cap firms.

This is not to say, however, that you should blindly invest in any mid-cap fund. Choose a fund that has a solid performance history and a reputable fund manager. All things considered, mid-cap funds may be a desirable choice for investors looking to diversify and grow their portfolios. You should, however, be aware of the associated risks and make sure they align with your risk tolerance and financial goals.

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