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Why Mid Cap Funds Are For You

There is no denying the fact that a mid cap mutual fund attracts a large number of investors owing to its ability to give heavy returns when the market is on an upswing. Yet there is another large section of the population who suffers from a dilemma whether to invest in this category of fund or not mainly because of the fact that it gets hard-hit when the market is otherwise in a bad phase.

However, this scene slightly turned around and began to face a little positive change among the investors from the early half of 2016 and is likely to continue even in 2017, say many investment experts. According to the mutual fund stalwarts, earnings of mid cap companies have been better than large cap companies when the growth was flat in 2016.

Over the past five years, mid cap funds have been giving us a spectacular return like 12.06 per cent in the last year, 25.51 per cent over three years and 21.63 per cent over 5 years. This growth in the past has raised high hopes of a decent performance even this year. Interestingly, the experts who used to advise people to invest in large cap funds have changed their tunes and asking people to invest in mid cap companies.

Now, let’s roll back on time a little more and take a view to the years like 2008 and 2010. When we look at the market history we see the outperformance of mid cap index during the bigger market crashes. For instance, in 2008 and 2010, the mid cap index had outperformed the Sensex and Nifty by almost 17 to 25 per cent.

However, amidst the talks of the outperformance by mid caps, it is not to forget that this category of fund is highly volatile too. If these funds deliver outperformance during the market upswing, they get a thrash as well when the markets are down. During the market fall of 2015, some mid cap stocks crashed by 80 per cent while large caps remained on course.

Nevertheless, going with mid cap funds can be rewarding considering the returns they can deliver. But it is wise to invest for a long term and stick to it till the cycle unfolds.

Ideally a mid cap exposure of 25 to 30 per cent in your portfolio is good. Investors who take a higher bet by fascinating returns should beware of much higher downfall during the adverse situation. If you can balance your mid cap funds portfolio, you are likely to see the sunny days in future than investing in the best large cap growth funds.

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