What are Mid Cap Mutual Funds?

Mutual funds have existed in India since 1963 and have since become popular investment options for millions. Mutual funds involve multiple investors pooling funds to buy diverse securities, like stocks and bonds. This portfolio is professionally managed, and mutual funds are attractive investments because of their expert management and reduced risk due to diversification. 

Mutual funds are often divided into different kinds, including large-cap, mid-cap, and small-cap funds. In this article, we explore the mid-cap meaning, mid-cap mutual funds meaning, and their benefits. 

What is Mid-Cap?

The complete form of mid-cap is mid-capitalisation. It refers to companies with a market value (or market capitalisation) between Rs. 5000 core and Rs. 20,000 crore. They fall between large and small-cap funds. Since these classifications refer to a company's current value, they change over time. 

How does a company's market cap affect investment? Companies typically try to raise capital through equity or debt. Equity costs more, but companies do not have to pay it back during periods of crisis. Conversely, debt can be borrowed at a lower rate but must be paid back. Companies try to keep a balance between them, and this is known as the company's capital structure. It can inform investors about a company's potential for growth. 

What are Mid-Cap Funds?

Regarding mutual funds, mid-cap funds mean funds that invest in the instruments of mid-cap companies. Mid-cap companies are in the middle of their growth curve. They are expected to witness a growth in profits and market share. For investors, a mid-cap mutual fund meaning is an investment with comparatively less risk than small-cap funds but more than large-cap funds. 

What Advantages do Mid-Cap Mutual Funds have?

Some advantages of mid-cap funds are:

1. Potential for Returns

Mid-cap companies are in the middle of their growth curve, meaning they have room to appreciate in value. They also allow for significant returns and dividends. 

2. Moderate Risk

Large-cap funds are low-risk, while small-cap ones are relatively high-risk. In contrast, mid-cap funds offer a balance between the two, with the potential for high returns but less volatility. 

3. Suitable for Long-term Investors 

There is a lot of growth potential for mid-cap funds, meaning long-term investors are more likely to benefit from the returns. 

What Risks are Associated with Mid-Cap Funds?

While they have many advantages, mid-cap funds also pose certain risks. These include:

1. Liquidity Risk 

Unlike large-cap funds, mid-cap stocks may be more challenging to buy or sell quickly, especially during market downturns.  

2. Risks Associated with Growth 

Mid-cap companies are still in the growth phase, which makes them more vulnerable to market downturns or industry-related challenges.  

3. Limited Track Record 

Mid-cap companies may not have long track records for their performance, making it difficult for investors to assess their potential. 

Wrapping up 

Mid-cap mutual funds come with a host of benefits but also certain shortcomings. Knowing which funds to invest in can be tricky. Tata Capital Moneyfy can help you determine which investments are right for you.  To get started, download the Tata Capital Moneyfy app today!