What are midcap funds? | Types of Equity Mutual Fund

There are three types of stocks - Largecap, midcap, and smallcap. Midcap invests at least a 65% pool in midcap stocks.

According to the market regulator SEBI, the top 101st to 250th companies in terms of market capitalization are midcap stocks.

Midcap companies work on a lower scale compared to their large-cap counterpart. For example, TCS & Infosys are large-cap stocks in the IT sector whereas Mindtree is a midcap stock in the same sector.

Their business size might be smaller, but midcap companies have more growth opportunities. Fund managers conduct a fundamental analysis to spot such companies and create midcap funds based on that.

Who should invest in midcap?

Midcap funds are for risk-takers. They have a higher return potential but at the same time, the chances of losses are also higher. Moreover, these funds could be highly volatile.

During a deep market bloodbath, midcap funds see comparatively more downfall compared to large-cap funds. But if you have conviction in your fund selection, you can stay invested. Do remember that you must have a long-term horizon when investing in midcap funds.

3 things to keep in mind when investing in midcap funds:

1. Track Record
Past performance is not a guarantee of future performance, but you have to look at it smartly while selecting a midcap fund. You must check out the last 1,3 & 5 yr returns & compounded annual growth rate (CAGR). CAGR tells you how a fund has performed over the long term. Go for funds that have consistently done well in these parameters.

2. Expense Ratio
The expense ratio is the charge you have to pay to the mutual fund house for managing the mutual fund scheme. Track the expense ratio of your shortlisted funds and zero in accordingly.

3. Reputation:
Check out the reputation of the fund house and the fund manager managing your fund. Does the fund house have credibility in the market? Are their MF schemes performing well? These things are also a matter of the qualification and experience of the fund managers.

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