Best Mid-Cap Mutual Funds 2020 – Top 10 Performing Mid-Cap Funds

Mid-cap mutual funds aim at generating benchmark beating returns by investing equity and equity-linked securities of mid-cap companies. These funds have the potential to provide much higher returns than large-cap and debt funds. We have covered the following this article:


Introduction to Mid-Cap Mutual Funds

Mid-cap funds are a class of equity mutual funds that invest mostly in the equity-linked securities of companies whose market capitalisation lies in the range of Rs 500 crore and Rs 10,000 crore. Mid-cap funds have the potential to provide higher returns as compared to large-cap funds as the growth potential of the underlying companies is on the higher side.

The size of the company is a crucial factor to be considered while investing in equity-linked instruments. This is because the set of risks and opportunities predominantly depends on the size of the company. Mid-cap companies have the potential to beat the benchmark and large-cap funds when the markets are bullish. This is possible as the underlying stocks will tap into the growth opportunities.


Top 10 Mid-Cap Funds

The following table shows the top large-cap funds as per the past 3-year and 5-year returns:

Fund 3-Year Performance 5-Year Performance Link

Who Should Invest in Mid-Cap Funds?

Investors looking at options to accumulate wealth faster by willing to take some risk can invest in mid-cap funds. Mid-cap companies are capable of providing higher returns while being volatile on the stock index. Investors who are ready to face volatility of these stocks in expectations of excellent returns may invest in these funds.


Taxability of Mid-Cap Funds

Since mid-cap funds are a class of equity funds, they are necessarily taxed like any other equity fund. The dividends are now taxed in the hands of investors at their respective income tax slab rates. This rule of taxation of dividends was introduced in Budget 2020. This is referred to as the classical way taxing dividends.

Short-term capital gains are realised on redeeming your mid-cap units within a holding period of one year. These gains are taxed at a rate of 15% irrespective of the income tax slab of the investors. Long-term capital gains are realised on selling your mid-cap units after a holding period of one year. These gains of up to Rs 1 lakh a year are made tax-free. Any gains exceeding this limit attract a tax at the rate of 10%, and there is no benefit of indexation provided.


Risk of Mid-Cap Funds

The mid-cap funds carry the same set of risks that any other equity fund comes with. The fund is exposed to market risk, concentration risk, interest rate risk, liquidity risk, and credit risk. However, this fund is less risky than small-cap and sector funds but riskier than large-cap or blue-chip funds. This risk can be mitigated to a great extent by investing via an SIP for a long period.


Advantages of Mid-Cap Mutual Funds

Mid-cap funds have generally outperformed large-cap funds when the markets are favourable. The very nature of the mid-cap funds makes the trend to continue for quite some time. The mid-cap funds are relatively underfollowed in stock markets as compared to large-cap funds. Mid-cap funds provide investors with an excellent opportunity for faster growth of their capital by investing in these funds.


Things an Investor Should Consider

Though mid-cap funds perform very well in bull runs, their value may go down when the market sentiment is dropping. Also in the case of high-quality stocks, mid-cap funds are not appropriate since they have a higher risk factor involved. Mid-cap stocks can be affected by the liquidity constraints due to their smaller capital base, i.e. the number of shares offered by the company. Since the underlying shares are characterised by lower market capitalisation and limited liquidity, these funds tend to follow cycles of bullish and bearish. This is based on the mirroring of the stock indices in general.