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Introduction to Mid-cap Fund
Mid-cap Mutual Funds meaning: If you are wondering what a Mid-cap Fund is, as per SEBI guidelines it invests in stocks of companies ranking within 101st to 250th as per market capitalization. Hence, this is a fund that invests in stocks of companies that are still growing but not at the nascent stage. As per SEBI guidelines, Mid-cap Funds need to invest at least 65% of their asset under management (AUM) in mid-cap stocks.
Mid-cap Mutual Funds strike a balance between risk and return. Mid-cap Funds can be ideal for those investors who are looking for higher returns at comparatively lower volatility than Small-cap Funds.
What is a Mid-cap Mutual Fund
Mid-cap companies are those which have passed their nascent stage of struggle and have built some brand value, they are those which have the growth ability and the have the potential to become Large-cap firms due to which Mid-cap firms can achieve high growth levels.
Mid-cap Funds provide better returns than Large-cap Funds but possess higher risk as well. Contradictorily, it provides a lower return than the Small-cap Funds but possesses lower risk as well.
How do Mid-cap Funds Work
Mid-cap Funds as per the rule of SEBI invest 65% of the assets in equity and equity-related instruments of Mid-cap companies. The remaining 35% of the AUM is invested as per the analysis of the fund manager and the market scenario. The average tenure for which you must stay invested in Mid-cap Funds is around 5 years to 7 years. These funds generally provide higher returns. However, returns vary from one fund to another.
Features of Mid-cap Funds
The features which make Mid-cap Funds popular amongst the investors are:
- High growth prospect: Mid-cap Funds invest in Mid-cap companies. These companies are growing companies and haven’t reached their peak yet. So, the returns are higher than fully grown companies.Companies in the Mid-cap space have higher chances to grow and shift to the Large-cap space.
- The lower volatility involved: Slightly risk-averse people can invest in these funds as the risk factor is lower than Small-cap Funds. They aren’t as volatile as Small-cap Funds. These funds provide a balance between the risk and the return.
- Long-term investment vehicle: Mid-cap Funds are for those who can stay invested for at least more than 5 years. Mid-cap Funds can provide good returns if you stay invested for long as the power of compounding comes into play.
Who Should Invest in Mid-cap Mutual Funds
Mid-cap Mutual Funds are an ideal investment for investors who are:
- Willing to invest for the long-term: You cannot expect your investments to grow overnight. You have to stay invested for 5 to 7 years to reap profit out of the investment. The reason behind this is that these companies are yet to be big or famous thus get affected by economic slowdown and market volatility. If you redeem your investment within a short period, you won’t be able to enjoy the benefit of compounding which increases the returns by a great extent.
- Willing to take more risk: Mid-cap Funds are not as risky as Small-cap Funds, but these funds possess a moderate level of risk due to the fact that they are not as well established as Large-cap companies.
What is the Minimum Investment Requirement
For investing in Mid-cap Funds, you don’t need a huge amount. If you are not investing thinking that it would require lakhs and crores to invest in these funds, then you are misinformed. You can start investing in these funds with just Rs. 100 using the systematic investment approach (SIP) approach. However, the more you invest, the returns will grow accordingly as well.
Things to Consider Before Investing in Mid-cap Funds
There are a few things that you need to keep in mind when you are going to invest in Mid-cap Funds and they are:
- Investment Goal: Your investment goals are the primary thing that you need to understand before investing in these funds. If you have some financial goals to achieve in the next 7-8 years, then these funds are a good option for you to invest your money. For instance, you want to save for your child’s higher education. She is now 12 years old, inthe next 7 years, she will be 19 and then you will need the money for her higher education. If you start investing now, you can reap better returns due to the longer duration.
- Volatility: Mid-cap Funds generally face higher volatility than Large-cap Funds, so you should consider this before investing
- Expense Ratio: Apart from the amount you invest in the mutual fund, there is an amount that the fund house deducts for its professional services. This is like the service charge for providing the services of professionally managing the fund. You need to be aware of how much the expense ratio is before investing in any Mid-cap Funds.
Tax Implications on Mid-cap Funds
If you redeem your investment in a Mid-cap Fund before completing 12 months from the date of purchase, then your profits will be categorized as short-term capital gains and will be taxed at a flat rate of 15%.
On the other hand, if you’re taking profits after one year from the date of purchase, your profits will fall under long-term capital gains. In a financial year, if your long-term capital gains do not exceed Rs. 1 Lakh, then you’re eligible to get a tax exemption, and if it exceeds that, then the excess amount will be taxed at 10% without indexation.
Suppose you made a long-term capital gain of Rs. 1.50 Lakhs from an Equity Mutual Fund in a financial year. Here, Rs. 1 Lakh will be exempted from income tax and the remaining Rs. 50,000 will be taxed at 10%.
How Can You Invest in Mid-cap Funds through Nivesh
Any investor can enjoy the benefits of investing through Nivesh in the following easy steps:
- Create an account in Nivesh by providing your basic KYC details. (If you already have an account then just login into your account)
- On your portfolio page click on the Buy New tab at the right top corner of the screen.
- Select the category and choose the funds you want to purchase.
- If you already know the name of the fund to buy, then you can search the particular fund through Quick Order.
- Fill the transaction details and confirm. You can place up to 5 orders in one go.
- You can make payment through your registered account through UPI, Direct Pay, or NEFT/ RTGS , Bank Mandate or Cheque. For same-day NAV, select UPI, Direct Pay or NEFT / RTGS as other payment options may take a few days to clear, Nodal account takes about 1-2 days to clear payment from the approved mandate and cheque takes about 2-5 days in clearing due to which you will not get the same-day NAV.
Frequently Asked Questions (FAQs)
1. Is it Safe to Invest in a Mid-cap Fund?
These funds invest in Mid-cap stocks which are not highly volatile as compared to Small-cap stocks. However, before investing, you must align your investment goals, budget, risk appetite, and then invest.
2. What is the Minimum Amount to Invest in Mid-cap Funds?
With SIP investment, you can start with even Rs. 100. You can invest a lump sum amount as well. However, the minimum amount for investment varies from one scheme to the other. So, check before you start investing.
3. How Long Should you Invest in a Mid-cap Fund?
For reaping good returns out of Mid-cap Funds, you should stay invested for a minimum of 5+ years. The ideal tenure for investing in Mid-cap Funds is around 7 years and more.
4. Can we Redeem Mid-cap Funds Anytime?
Yes, there is no lock-in period in these schemes. You can withdraw funds from your mutual fund scheme as and when you need them subject to exit load if applicable.
5. Is There any Tax on Mid-cap Funds?
Yes, capital gain taxes are levied on the profits from Mid-cap Funds. Whether long-term or short-term capital gain taxes will be levied depends on the tenure of the investment.
