Aug 17, 2017 3 min read

Why Should Mid-Cap Funds Be a Part of Your Investment Portfolio?

Get to know who should consider investing in the mid-cap stocks and why!
Among all the equity mutual funds, the mid-cap funds have their own charm. They deliver exponential returns when the market goes up due to which the investors are attracted towards them. However, they are the ones which get most of the beating when the market faces a sudden fall.

This variation between the fall and rise in the performance of the mid-cap funds can be huge which makes the investors think twice whether to hold mid-cap funds in their portfolio or stay away or invest partially. Here we have made an attempt to provide you with the detailed information about the mid-cap schemes in terms of providing you the best returns in spite of market volatility and will help you in deciding what you should do!

The Past Performance -

Before understanding the inherent risk of mid-cap funds, it’s important to know how much returns they have delivered in the past. On analysing the market history, the outperformance of the schemes of this category has been witnessed even in the bigger market crashes. For instance, in the year 2008 and 2010, the midcap index outperformed Sensex and Nifty by almost 17 to 25 percent. If we see the performance of the fund in the last three to five years, the mid-caps have delivered returns in the range of 80 to 100 percent in comparison with the large-cap index, i.e., 25 to 40 percent. In the year 2015, the calendar year return of large-cap fall by 2 percent, where mid-cap offered 6 to 10 percent. There have also been times in the history of these funds when the performance of the mid-cap stocks was tremendous, but have fallen drastically during the market downfall.

The Risk Review -

The mid-cap segment is highly volatile in nature. If they can deliver exceptional profits in the up market, they can also make your portfolio’s performance fall all of a sudden when the market downturns. Where the large-cap equity funds prevent the fall in valuation of the schemes, the mid-cap has all potential to go down. So if you can bear high risk on your portfolio and the market volatility does not affect you much, then you can hold this fund in your portfolio.

Variations in Different Mid-Cap Schemes -

It has been observed that the performance of different schemes in this category varies due to the underlying strategies as all the funds adopt varying philosophy to deliver the desired returns. Some funds prefer to hold the small-cap stocks, while others may have the large-cap shares in their asset allocation. Furthermore, the sectors in which the schemes make investment also make a different in their performance. Some of the funds take the blended approach and invest in both growth- and value-oriented companies, while the others go with cyclical investing and can vary as per the market scenario. Thus, the underlying strategies of the schemes have a great impact on the fund’s overall returns. Here the fund manager plays a pivotal role, and one must analyse his/her philosophy before putting the monies in the schemes.

What Should the Investors Do?

Opting for the mid cap funds can be rewarding for your portfolio if we consider the performance and the returns they offer. However, one needs to stay invested for a longer tenure until the investment cycle unfolds. Considerably, the mid-cap exposure of 25 to 30 percent is quite appreciable for the portfolio to be productive. The investors who wish to take a higher proportion of these funds in their portfolio should remember that their investment values can face a high degree of downfall in the adverse market scenario, and they should be ready to bear the same. Betting too much of your money in the high-risk fund is again not recommendable, and one must maintain a balance between the different stock categories to earn consistent growth and higher values.

So if you feel investing in the mid-cap funds beneficial and favourable to your investment goals, then you must consider investing in them. MySIPonline provides the best recommendations for one’s portfolio as per the requirements and objectives. You must get associated with our team to reach your financial dreams within time.