When you start exploring mutual funds, it’s easy to get drawn toward the extremes. On one side, you’ve got the heavy-hitters — large-cap funds with their dependable, blue-chip comfort. On the other hand, there’s the thrill of small-cap investments that promise big returns with equally big risks involved. But what if you’re looking for something that offers both growth and a bit of stability?
That’s where mid-cap mutual funds come in. By adding mid-cap funds to your mix, you give your portfolio a chance to grow steadily without riding the emotional rollercoaster that sometimes comes with higher-risk picks. So, how do you build with mid-caps? Let’s walk through it.
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What Are Mid-Cap Funds?
Think of the stock market as a high school. You have the big popular kids, i.e., large-cap companies, the underdogs (small-cap companies), and there is a group in the middle – mid-caps. These companies have outgrown their awkward startup phase, but they are still nimble enough to make big moves.
As per their definition, mid-cap funds invest the majority in companies ranging between 101st and 250th on stock exchanges as per their market capitalisation. They are not flashy, and they won’t always make headlines, but they sit in that sweet spot — companies that are growing fast but aren’t flying blind. Think of them as the quiet overachievers of your portfolio — still hungry to expand, yet strong enough to handle market bumps.
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Why Mid-Cap Funds Are Important for Your Portfolio
Here’s a list of reasons why mid-cap funds deserve a spot in your portfolio:
- Growth Potential Without the Whiplash
Small-cap stocks can surely grow fast, but these stocks can also crash just as quickly. On the other hand, large caps are steady, but they are slow-moving. Now, mid-caps have historically shown the ability to outperform large-caps in the long run, while avoiding the small-cap mood swings.
- Diversification Benefits
You don’t really want your entire portfolio riding on the fortunes of a singular sector – technology or energy. Mid-cap funds offer proper sector diversification, providing you with exposure to multiple sectors like healthcare, manufacturing, retail, and beyond.
- Professional Management
When you decide to invest in mid-cap mutual funds, you are handling the wheel with a team of experienced and professional fund managers. Their job is to analyse and pick the stocks, so you don’t have to guess and depend on your luck for your wealth creation.
How to Build a Portfolio with Mid-Cap Funds
Now that you have understood that mid-cap funds are great, let’s get into how they can be used to complement your portfolio:
- Assess Risk Tolerance and Define Your Investment Horizon
Before jumping into mid-caps, ask yourself: how much market drama can you handle? If you think of yourself as a risk-averse investor, ideally, you should go for a core asset allocation strategy. They focus on stability and reliability, making sure your portfolio grows steadily over time. Now, if you have a higher risk appetite, you can go for a satellite strategy, providing you with an opportunity to earn high returns through dynamic, specialised, and opportunistic investments.
- Blend with Other Asset Classes
Ideally, you should not put all your saved-up money into one cap size. You should combine your mid-caps with large-cap funds for stability, small-caps for aggressive growth, and even sprinkle in some bonds or international funds for balance. A well-diversified mix helps reduce risk and smooths out the rollercoaster ride.
Diversifying Within Mid-Cap Funds
Even within the mid-cap universe, not all funds are created equal. Spreading your bets can help minimise risk and tap into different growth opportunities. Some mid-cap funds may lean heavily into sectors like IT, pharma, or industrials. Make sure your investments aren’t overly concentrated in one sector—unless you’re oddly passionate about shipping logistics or steel production. You can also consider allocating a portion to international or global mid-cap funds to diversify across regions. You can even get a mix of active and passively managed funds and call yourself a diversified genius.
Tips for Successful Investing in Mid-Cap Funds
Mid-cap investing isn’t a “set it and forget it” game. Here’s how to stay on track:
- Don’t just pick the first fund you see with a shiny 5-year return. Do your homework.
- Rebalancing helps keep your risk level in check. Aim to review your allocation at least once or twice a year.
- Consider SIPs for consistent investment. It smooths out market volatility and builds discipline.
Top 5 Funds
Here’s a list of the total 5 mid-cap funds ranking on their 5-year returns:
| Fund Name | Fund Size | 1Y Returns | 3Y Returns | 5Y Returns |
| Motilal Oswal Midcap Fund | Rs. 26,028 crores | -4.12% | +27.87% | +31.63% |
| Edelweiss Mid Cap Fund | Rs. 8,634 crores | +1.49% | +26.11% | +27.52% |
| Nippon India Growth Fund | Rs. 33,175 crores | -0.52% | +24.51% | +26.84% |
| HDFC Mid-Cap Opportunities Fund | Rs. 72,610 crores | -1.67% | +23.54% | +26.46% |
| Quant Mid Cap Fund | Rs. 8,356 crores | -10.84% | +18.39% | +25.91% |
Mid-cap funds might not have the glitz of large-cap funds or the buzz of small-caps, but they have historically added balance, growth, and reliability to investors’ portfolios. You can think of them as your financial comfort food – dependable, satisfying, and surprisingly good for your health. So, do not let them fly under your radar. Add a dash of mid-cap funds to your portfolio, and give your future self something to high-five you for.
References:
https://www.etmoney.com/mutual-funds/equity/mid-cap/35
https://www.angelone.in/knowledge-center/mutual-funds/what-is-core-and-satellite-portfolio