Personal Finance

All You Need To Know About Mid Cap Funds

May 22, 2020

All You Need To Know About Mid Cap Funds

Mid Cap Funds are open-ended schemes that aim to generate capital appreciation over the long run. These funds invest at least 65% of investors’ money in equity and equity-related instruments of mid cap companies. As per AMFI’s list of stocks, these stocks fall between 101 and 250th rank in terms of full market capitalisation. These funds look for stocks of mid-sized companies that have the potential to grow into large companies tomorrow.

Your invested capital will multiply and wealth accumulation will occur when the underlying mid-sized company becomes a market leader over a period of time and the prices of the underlying stocks increase manifold. Mid Cap Funds are looked upon as a high-risk high-return opportunity and are suitable for investors who have a high-risk appetite and an investment horizon of at least 5 years or more. You can invest in these funds to achieve financial goals like long term wealth creation, higher education, planning for retirement and the likes.

How Can I Assess Mid Cap Funds?

You may assess a Mid Cap Fund as per your financial goals, risk tolerance, and the investment horizon. In addition to this, you may also consider the following parameters to gauge the suitability of a Mid Cap Fund:

a. Examine the history of the fund house:

It is important to know the time frame for which the particular fund house has functioned in the Mid Cap category. Fund houses that have a relatively long history of at least 5 years could be a preferred investment option. This way you can assess whether the fund performance was genuinely the effort of the fund manager or simply a matter of chance. Don’t get swayed by newcomers who have given sky-high returns in their first year of operation.

b. Assess the performance of the mutual fund:

When you examine the fund returns, you get to know whether or not the mutual fund scheme would be able to generate returns that are high enough to achieve your specific goals. Compare the Mid Cap Funds on the basis of their risk-adjusted returns, as reflected by its Sharpe Ratio, instead of relying only on plain-vanilla returns. Sharpe Ratio explains about the fund’s capability to generate additional returns for the extra risk taken. Choose a fund that has a relatively higher Sharpe Ratio. Ensure that the fund has generated such returns on a consistent basis.

c. Analyse the expense ratio of the fund:

The expense ratio sums up all the costs that the fund house incurs to manage a mutual fund scheme. If the fund has a high expense ratio, then it may bring down the fund returns considerably. Direct plans of Mid Cap Funds can be a good way to invest in equities at a relatively lower expense ratio. This translates into up to 1% higher returns than regular plans.

Best Mid Cap Funds 2020

From a risk-return standpoint, Mid Cap Funds lie in-between Small Cap Funds and Large Cap Funds. Their NAV may fluctuate immensely on the slightest bout of market volatility. But at the same time, these funds carry a huge potential to deliver superior returns. Enlisted here are the best Mid Cap Funds for 2020.

How To Invest In Mid Cap Funds Via Paytm Money?

Investing in Mid Cap Funds is a smart way to park your funds for your long term financial goals. The Paytm Money app and Paytm Money website offer only the top-rated funds for you to pick from. Here are a few steps that you need to follow to invest in Mid Cap Funds:

Step 1: Download the Paytm Money app to complete your KYC & become investment-ready within minutes

Step 2: You can start investing both on our website and App. On the home screen of the App, tap on the ‘Equity Funds’ given in the ‘Get Started with Mutual Funds’ section.

Step 3: On the ‘Equity Mutual Funds’ page, tap on ‘Mid Cap Funds’ followed by tapping on a fund of your choice.

Step 4: Tap on ‘Invest Now’ via SIP and enter the amount of investment. Tap on ‘Proceed to Payment’.

Step 5: Make payment using UPI, Netbanking, or by setting an Auto Pay with your bank for automatic deduction of your payments. Tap again on ‘Proceed to Payment’ to complete the transaction.