Mutual fund investments offer an opportunity for investors to customise their portfolios to suit their needs and risk appetite. Most conservative or risk-averse investors choose to invest in large-cap funds due to their relative safety and stability, while some may aim for higher returns by investing in small-cap funds.
If you want to expand your investments beyond the safety of large-caps but aren’t ready to step into small-cap schemes, then mid-cap funds may work for you. Mid-cap funds are a type of equity mutual fund that focuses on investing in the stocks of mid-sized companies (ranked from 101 to 250 based on their market capitalization).
Mid-cap funds tend to have less volatility and risk than small-cap funds but have the potential to generate greater returns than large-cap investments. Learn more about the advantages of investing in mid-cap funds and why financial experts recommend adding them to your portfolio!
1. Balanced risk and reward
Mid-cap mutual funds offer a relatively balanced approach to risk and returns. Small-caps can be high-risk investments because they are more volatile, while large-caps usually have more stability but less potential for growth than mid-caps. Investing in mid-cap funds gives you the best of both worlds – less risk than small-cap and higher growth potential than large-cap funds.
2. Diversification
When you invest in mid-cap funds, you get exposure to various mid-sized companies. It helps you spread out risk and reduce the possibility that any one company will significantly affect your overall portfolio performance. This is especially important if you want to build a long-term portfolio since it ensures your investments are spread out among different types of industries, helping to minimise risk while maximising returns over time.
3. You can start an SIP to invest systematically
To make the most of mid-cap mutual funds, you can start an SIP – a systematic investment plan. This will allow you to spread out your investment amount over time instead of making a large or one-time lump sum payment. An SIP can protect your investments from market volatility as it eliminates the need to time the market. Also, with gradual and regular investments over time, you can take advantage of rupee-cost averaging, reducing your average purchase costs and enhancing overall returns.
To maximise your returns from an SIP in a mid-cap fund, make sure to use an SIP calculator online. Simply enter the amount, frequency, duration, and expected returns into the SIP calculator, and it will show you the maturity value of your investment. Plus, you can change the amount of your SIP instalment and input different interest rates to compare various SIP plans and make an informed decision.
4. Long-term wealth creation and fulfilment of different goals
Mid-caps companies are not as prominent and established as blue-chip stocks, but they have larger capitalisation than small-cap companies. Mid-cap companies also have better financial fundamentals – meaning they are less likely to experience dramatic fluctuations in price and can provide steady returns over time. Therefore, you can invest in mid-cap funds to fulfil different long-term goals like retirement planning, children’s education, etc.
Closing thoughts
While a mid-cap fund has growth potential and can be an appropriate addition to your portfolio, it is equally important to invest wisely. Whether you invest through SIP or lump sum, always evaluate your investment goals, investment horizon, risk appetite, fund performance, expense ratio, and other important factors. It may also be helpful to consult an advisor to formulate a customised investment strategy based on your financial objectives.
