Are Mid-Cap Funds a Favorable Investment Choice? Know the Answer

You must have heard people around you discussing whether to invest in mid-cap, large-cap or small-cap funds. After all, these three terms are believed to be the biggest factors to decide upon in the investment world and therefore, trigger endless discourse, scrutiny, and analysis.  In case you wonder, the market cap of a fund indicates the size of a company. However, the cap sizes vary from time to time, mostly depending upon the brokerage houses. Large-cap funds usually include the blue-chip companies that have a stable and large scale business like TATA, Infosys, and Coal India, while mid-cap and small-cap funds include the companies that have a lesser capital gain but have the ability to generate high returns for investors. 

It goes without saying that large-cap funds are a popular choice of investment owing to their large scale business and stable capital gain. But in recent times, mid-cap funds are neither lagging behind from enticing a large number of investors with the ability to generate high returns over the last couple of years. In fact, mid-cap and small-cap funds have delivered returns over 125% in two years in the year 2015, which is a way higher than the returns yielded by large-cap funds. This has raised many eyebrows and led to the question - are mid-cap funds worth investing in?
Mid-cap funds have a great potential to deliver high returns but not for a long time. Perhaps, that’s the reason why you can get better returns from mid-cap funds as compared to the large-cap funds. It has also been anticipated by the investment experts that mid-cap and small-cap funds will continue to outperform the large-cap funds in the near future. This is because mid-cap and small-cap funds are likely to focus more on growth strategy than large conglomerates.

Hence, mid-cap funds make a great choice of investment provided you have a moderate risk appetite. These funds are considered to be a potential source of return for an equity portfolio over the tenure of time. 

Disclaimer: However, do not depend completely on a single fund no matter how well it does, because there is always an exception to the rule. Evaluate your fiscal position and determine which fund would make the best choice of investment. It is always advisable to invest in a diversified portfolio where large-cap mutual funds would give a stable and long-term return, while mid-cap funds will provide you with a relatively quick return. Ideally, your portfolio should consist of 20% to 25% mid-cap funds and 65% large-cap for yielding a consistent risk-adjusted return.