Mid-Cap Equity Funds – Your Guide to a Testing But Profitable Investment


Market capitalisation plays a crucial role in categorising companies into three tiers — Small-Cap, Mid-Cap and Large-Cap. It is the company’s value, which is ideally derived by multiplying the total outstanding shares with the firm’s share price. If you wish to invest your funds in mid-sized companies, mid-cap funds – a type of equity mutual fund, are appropriate for you.

Mid-Cap companies can be pretty old or renowned but generate more-than-average profit growth. However, they are susceptible to the risk of non-success and require meticulous selection.

Mid-cap funds are often considered understudied and underrated, but these funds hold great growth potential if they are researched well. Nonetheless, the higher the growth potential rate, the higher the risk rate. If you can confidently take the risk onus on you and pull off your investment for approximately seven to 10 years, you can opt for these funds. First-time investors are usually not advised to invest in them. If you are an avid risk-taker in this unstable market situation, you can invest in these funds compared to large-cap funds.

But before you invest, make sure you thoroughly study-specific parameters as mentioned under:

Growth Potential of Mid-Cap Fund

Evaluation of a mid-cap fund’s performance and growth potential is a must.

Firstly, review the operation of the mid-cap index with the help of bearish and bullish market circles. With most mid-cap companies being new and not broadly studied, you need a broader vision to identify those with solid growth potential. Besides its steadiness in performance, the fund’s position is the first thing to watch for in a progressive mid-cap fund.

Investment Perspective

A mid-cap fund is only beneficial if you keep your funds invested for a more extended period, say for a minimum of not less than seven to 10 years. Usually, equity investments are inconsistent if the investment period is shorter. Instead, they perform well if invested for a longer run.

Age – Definitely a Bar

The significance of equity fund investment can be enjoyed thoroughly with time, and as you age, it will benefit you. An individual close to retiring or is already retired invests in these funds. It will be a rewarding option. Hence, age is a critical factor for inspection.

Cost Quotient

You need to know the costs involved before investing in mid-cap equity funds. An Asset Management Company (AMC) charges a nominal fee for managing your funds. Other intermediaries like brokers and distributors may also be involved, to whom you would have to pay commission. Therefore, ensure you pick a fund that carries a low expense ratio.

Opt for an Accomplished Fund Manager and Fund House

An experienced fund manager is what one needs to make correct decisions on purchasing or selling the funds. Therefore, it becomes necessary to review the fund manager’s performance and ensure your funds are in the right hands.

Selecting a reliable fund house is also essential. The past performance of the fund house, the research and investment activities done before by the team, and how well it has impacted the market volatility should also be taken care of.

Risk-Taking Potential

The risk factor varies from different equity schemes compared to their debt copy. Under equity funds, the mid-cap and the small-cap are riskier than the large-cap funds/balanced funds.

If you can bear the risk of mid-cap investments, only then invest in them.

Tax Formulation

These funds are prone to capital gain tax and dividend distribution tax as explained below:

Dividend Distribution Tax (DDT)

Per the instructions of the regulatory board, the fund houses are liable to deduct 10% of DDT before giving the dividends to the unit-holders.

  • Tax Levied on Capital Gains

You receive taxable capital gains whenever you redeem the mid-cap fund’s units. The tax rate depends on the period you have invested your funds in the mid-cap scheme.

  • STCG – Short Term Capital Gain – One-year holding period – Tax up to 15%.
  • LTCG – Long Term Capital Gain – More than one-year holding period and investment up to one lakh – No Tax. For any amount exceeding one lakh, tax up to 10%.

In cases like the above, ELSS (Equity Linked Savings Scheme) is a tax-saving fund you can opt for while investing in a mid-cap fund. This will benefit from saving you income tax under section 80C.

Edelweiss Mid-Cap Fund, PGIM India Mid-cap Opportunities Fund, Quant Mid-Cap Fund, Axis Mid-cap Fund, and Kotak Emerging Equity Fund are among the best five mid-cap funds you can invest in. These funds guarantee consistency in the rate of returns on a larger scale than most others in this category. They can control the losses incurred during the market fall.

You can also diversify your funds by investing in US stocks. The US stock market index live gives you an insight into the best-performing funds you can invest in with a detailed performance chart. Kuvera, an investing app built in India and registered with SEBI, helps you buy/sell and overall investment.