Investing in mutual funds has gained traction over the years. It can be a viable way to build wealth, especially for those who seek a balance between risk and return. One of the sub-categories of it is mid-cap funds. Positioned between large-cap and small-cap categories, mid-cap companies offer a unique growth opportunity. This article talks about how mid-cap funds can help accumulate substantial wealth for you.
What Are Mid-Cap Mutual Funds?
Mid-cap mutual funds invest in stocks of companies with market capitalizations between ₹5,000 crore and ₹20,000 crore. These funds offer growth potential and relative stability, making them suitable for investors with a moderate risk appetite.
Using a calculator can help potential investors plan their investments by forecasting returns over a chosen investment horizon.
The mid-cap segment has demonstrated strong performance in recent quarters. The Nifty Midcap 100 Index increased more than 27% by Q2 FY25, outpacing both the Nifty 50 and the Nifty Smallcap 100.
This growth has been driven by mid-cap companies in emerging sectors like renewable energy, pharmaceuticals, and consumer goods. Mid-cap funds that track these sectors have also shown above-average returns, benefiting investors who stayed invested through SIPs.
Why Choose Mid-Cap Mutual Funds?
Mid-cap investing can be a rewarding strategy for investors who are willing to take on a bit more risk. Let’s check why investors should choose mid-cap funds.
- Strong Growth Trajectory: Mid-cap funds harness the potential of mid-sized companies that have surpassed initial hurdles but still have significant growth ahead. These funds are better equipped to respond to market opportunities than large-cap funds. For instance, top-performing funds like DSP midcap fund have a return of 41.2%. Whereas the category average is 44.61%.
- Cost Efficiency with SIPs: Investing in mid cap mutual funds through SIPs offers a cost-effective way to accumulate units over time. By using a SIP calculator, investors can estimate returns and strategize their monthly investments. This method benefits from rupee cost averaging, mitigating the impact of market volatility, and optimizing long-term growth potential.
- Valuation Advantage: Mid-cap stocks often trade more attractive valuations than their large-cap peers. Currently, the Nifty Midcap 100’s P/E ratio is 43.5%, which is at a favorable level compared to the broader market, making mid-cap funds an appealing option for value-focused investors.
Top Performing Mid-Cap Mutual Funds to Consider
For FY24-25, several mid-cap funds have been identified for their consistent track records and diversified portfolios:
- Axis Midcap Fund: Known for its focus on quality mid-cap companies, this fund has shown resilience during market fluctuations.
- DSP Midcap Fund: With a diversified sector allocation, DSP Midcap Fund has performed steadily, benefiting from the growth in sectors like IT and specialty chemicals.
- HDFC Mid-Cap Opportunities Fund: Leveraging opportunities across emerging industries, this fund has maintained strong returns, making it a solid choice for SIP investors.
Historical data showcases the wealth-building potential of mid-cap funds. The Nifty Midcap 100 Index has delivered a 10-year CAGR of 16.9%, outperforming fixed-income instruments. With India’s GDP growth projected at 6.5-6.7% for the coming years, mid-cap funds are well-positioned to capitalize on domestic demand and sectoral innovation.
Conclusion
Mid-cap mutual funds present an opportunity to diversify and boost portfolio returns. By choosing the right funds, investors can optimize their wealth-building journey.
A diversified, long-term approach is key to harnessing the mid-cap sector’s potential while managing the associated risks. As the mid-cap space evolves in FY24-25, these funds stand out as a promising investment for those aiming for growth in India’s dynamic market.
