Best Mid Cap Mutual Funds 2021 – Top Mid Cap Funds
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Best Mid cap Mutual Funds in India for 2021
| Mid Cap Fund |
Rating |
6 months |
1 Year |
3 Years |
5 Years |
AUM |
Expense Ratio |
| Axis Midcap Fund |
4 Stars |
31.29% |
26.94% |
17.43% |
18.04% |
8,515 |
1.89% |
| DSP Midcap Fund |
4 Stars |
29.94% |
24.48% |
10.72% |
17.36% |
9,823 |
1.82% |
| Tata Midcap Fund |
4 Stars |
32.28% |
22.01% |
10.76% |
14.43% |
1,934 |
2.18% |
*This is simply the list of best mid cap funds. This is not investment advice.
What are Best Mid Cap Mutual Funds?
Mid cap mutual funds are mutual funds that invest in companies with a market capitalisation between Rs 500 crores to Rs 10,000 crores.
The Securities and Exchange Board of India, SEBI defines mid cap mutual funds as ‘funds that invest at least 65% of their corpus in mid cap companies’.
As per SEBI, mid cap companies are those companies which rank between 101st and 250th in terms of market capitalisation.
These companies have the potential to become ‘large-caps’ in the future. Mid cap companies provide higher growth opportunities to investors as the company is still in the growth phase.
Mid cap funds are riskier than large cap funds. But mid cap funds do outperform large cap funds in a bull market.
However, in a bear market, mid cap funds fall more than large cap funds. The reason being limited scale of operation, resources and comparatively smaller customer base.
Mid cap funds are considered to be ‘high risk – high reward’ mutual funds.
Who Should Invest in Mid cap mutual funds?
Only investors with a high-risk profile and long-term horizon should invest in mid cap funds. Since they invest in companies which are in growth phase, mid cap funds are not stable and face high fluctuations.
Mid cap funds are also suitable for investors looking to diversify their portfolio. A Mid cap fund is a bridge between large cap and small cap funds.
Unlike small cap funds, mid cap funds have better stability. In terms of returns, they provide higher returns than large cap funds.
Who Should Not Invest in Mid cap Mutual Funds?
Mid cap funds are ‘high-risk high returns’ funds. Hence, they are not suitable for investors with a low risk profile. Conservative (low-risk) investors might not be able to handle the volatility of a mid cap fund.
Mid cap funds invest in companies which are in the growth phase. It generally takes a long time period for these companies to become ‘large cap’ companies. Hence mid cap funds are not suitable for short term investors. Investors with less than 7 years’ time horizon should not invest in mid cap funds.
Mid cap companies do not have a stable history of dividends. Hence retirees or investors looking for a stable flow of income should invest in large cap funds and avoid mid cap funds.
Why Should You Invest in Mid cap Funds?
Best Mid cap funds have the potential to increase your overall portfolio returns. These funds can help you achieve your financial goals faster.
Since mid cap funds invest in niche mid cap companies, they generate higher returns than equity funds in bull market.
What are the risks in Mid cap funds?
Mid cap funds are highly risky. Since these funds invest in companies with lower market capitalisation, they face the following risk:
1. Liquidity Risk: Mid cap companies issue limited number of shares in the market. Hence mid cap companies have less liquidity. It becomes difficult for fund managers to exit a position quickly due to low liquidity. This impacts the overall fund returns.
2. Market Risk: All equity mutual funds face market risk. But mid cap funds face higher market fluctuations compared to large cap funds. At times, the net asset value, NAV of mid cap funds falls by 3% -4% in a single day. This hardly ever happens in large cap funds.
3. Default Risk: Mid cap companies have lower customer base and less resources. So, in an economic slowdown, these companies are worst hit. Many companies are also forced to shut down. While fund managers do due diligence while investing in mid cap companies, they still carry high default risk.
How are Best Mid cap Funds Taxed?
Since mid cap funds invest more than 65% of their corpus in equities, they are categorised as equity mutual funds. Mid cap funds follow equity fund taxation.
The holding period for mid cap funds is 12 months.
- If you sell your units before 12 months, then a short-term capital gains tax of 15% is applicable.
- If you sell your units after 12 months, then a long-term capital gains tax of 10% above Rs 1 Lakhs is applicable.
- If you sell your units after 12 months, but the gains are below RS 1 lakh, then no tax is applicable.
Final Thoughts
Mid cap funds are risky. But you can reduce your risk by investing as per your financial goals. Ideally, you should invest in mid cap funds only if your investment horizon is more than 7 years. This gives the mid cap funds enough time to grow.
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