Introduction
Mid-cap funds are pooled investment vehicles that only invest in mid-cap companies, i.e. companies with market capitalisation lying in the mid-range. mutual funds are categorised based on the market capitalisation as large-cap, mid-cap, and small-cap funds by the Securities and Exchange Board of India (SEBI) to ensure uniformity in the investment space.
Understanding Mid-Cap Fund
Market capitalisation refers to the total value of a company traded in the stock market. It can be calculated by multiplying the total number of shares/stocks with the prevailing share/stock price in the market.
For example, if a company has two crore shares trading at Rs.4,000 per share in the market, the company will have a market cap of Rs.8,000 crore.
Companies are listed with respect to their market capitalisation by the Association of mutual funds of India (AMFI) in consultation with SEBI and stock exchanges, such as the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and the Metropolitan Stock Exchange of India (MSEI). These funds contain stocks ranked from 101 to 250 in the listed stocks and invest only in mid-cap companies.
Factors to Consider
Since mid-cap companies fall between large-cap and small-cap companies, they are exposed to both ends of the market capitalisation spectrum. These companies generally have a strong scope for growth and the possibility of turning out to be an overnight success attracts investors to invest in mid-cap funds.
Mid-cap companies generally tend to outperform companies with large-cap during a well-performing market as they are on the lookout for potential growth opportunities to expand. However, these funds are relatively volatile than their large-cap counterparts.
It is advised to research extensively and time your investments during the correction phase of the market if you are looking for good returns when investing in mid-cap funds.
