What are Mid Cap Equity Funds ?

Equity funds are those mutual funds which invest their assets in equity and equity and related securities to generate returns for investors. These funds are great for capital appreciation as their objective is to achieve long-term capital growth. Equity funds are best for investors who want exposure to stock markets. These funds are known for generating high returns over longer periods of time. The risks are also comparatively higher during the short periods as compared to pure debt or hybrid funds. There are a total of 10 sub-categories of equity funds investing in equity securities as per their investment objective & attributes. One of the popular types of equity mutual funds is Midcap funds.

Let’s have a look at the features & offerings of midcap funds:

What are Mid Cap Funds ?

Mid Cap funds are those equity funds that primarily invest in the companies which fall under the mid-sized market capitalization. As per SEBI Categorization, Mid-cap companies are classified as those companies which rank between 101-250th companies in terms of market capitalization. Mid-cap companies are generally the fastest-growing companies in their segments. These companies are at that stage where today’s market leaders were before, so they have the high capability to turn into large caps over the coming years.

Features of Mid Cap Funds

These funds invest in companies that rank between 101-250 companies in terms of market capitalization.
Companies with mid-sized market capitalization are generally the fastest growing companies in their respective sectors.
Mid-cap companies have to potential to beat the market returns.
These funds are more likely to falter during hard market conditions like in the events of the crash. The expected fall is bigger in these funds as compared to large-cap funds. However, the expected fall is smaller than small cap funds.
These are best for investors who have want to create wealth or achieve capital growth over the long term. These are suitable for high-risk investors.
Gains from these funds are taxable as per the applicable LTCG (Long term Capital Gains) & STCG (Short Term Capital Gains) tax rate depending upon the holding period of the investors.
These funds have the ability to generate high returns over the longer time horizons.

Also Read : HDFC Balanced Advantage Fund

Major aspects of Mid Cap Funds

Liquidity

The midcap stocks are more liquid than smallcap stocks. These stocks are actively traded in the markets. And liquidity is not a major issue in these stocks for a fund manager.

Talking about the liquidity from the investor’s perspective, the midcap funds are highly liquid investments. An investor can liquidate their investments anytime with a few clicks and get the amount deposited in their linked bank account within 2-3 working days.

Diversification

The midcap funds in an investor’s equity portfolio can provide the benefits of diversification. As different market caps perform at different times, the inclusion of midcaps in the portfolio could help in getting good returns with reduced overall portfolio risks.

Risk

Midcap Funds carry higher risks as compared to large-cap funds, but they are less riskier as compared to other equity categories like smallcap, thematic, etc. As they invest in mid-sized companies which are more volatile in response to market events as compared to large-cap companies, these funds carry higher volatility. However, the overall risks & volatility is lower than smallcap funds as the midcap companies are relatively large in size.

These are best suitable for investors who have a high-risk tolerance along with an investment horizon of at least 5-7 years.

Returns

The mid-cap funds have the potential to offer high returns over the long term because of their investments in high growth companies. These companies carry the capability to transform into large-caps over the coming years through their high growth business, sound management, and good marketing practices. Investors can expect a great return on their capital if they remain invested for the long term.

Taxation

The returns from the mid-cap mutual funds are subject to the capital gain tax under the Income Tax Act. If the units are sold within the 12 months period, then the gains are taxed at the STCG(Short Term Capital Gains) tax rate of 15%. And if the units are sold after the period of 12 months, then the gains are taxed at the LTCG (Long Term Capital Gains) tax rate of 10%. The LTCG tax is applicable only on the gains above Rs.1 lakh in a financial year.

Redemption Charges

Mid Cap funds have the exit load charges which are applicable at the time of the redemption. Exit load charges can vary from fund to fund. But for most of the funds, it is like 1% of the redeemed amount, when the redemption is done within the period of 12 months from the date of investment. And if redeemed after the 12 months period, then there are no charges.

Must Read: Best Mid Cap Mutual Funds to Invest in India

Who should invest in Mid Cap Funds ?

Mid Cap funds are best suitable for investors who are interested in long-term capital appreciation.
These funds are good for investors who want exposure to stock markets as they invest in equity and equity-related instruments.
The investors who want to invest for a long-term i.e at least 5-7 years can invest in mid-cap funds as these funds are known for their potential of long-term capital appreciation.
Midcap funds are for investors who have a high-risk tolerance and want to generate high returns over the long term.
These funds can be a good addition to an investor’s diversified equity portfolio. Adding a portion of midcap funds in your equity portfolio can offer a good boost because of their high return generating capability over the long term.
Investors who want to invest for short period should not invest in Mid-cap funds. They could probably look at investing in different categories of debt funds or hybrid funds depending on their investment horizon & risk profile.

How to Invest in Mid Cap Mutual Funds via ZFunds ?

There are very easy and simple steps to start investing in a Mid-cap mutual fund. Follow the below-mentioned steps to start investing:

Create your free account with ZFunds. If you already have an account with ZFunds, you can simply log in to it.
To create an account, you will be required to upload your identification documents which can include an Aadhar card, pan card, Voter ID card, driving license, passport, or any other document which is issued by the central or state government.
You will also be required to upload your address proof.
After that, you just need to select the best fund which suits you as per your investment horizon and risk.
And, then at last you just need to choose whether you want to do lump sum investment or start a sip.

After the successful investment, the units will be allotted and investment will be reflected in 2-3 working days in your ZFunds account.

Frequently Asked Questions (FAQs)

Q. Where does the Midcap funds invest ?
A. Mid Cap funds invest in the stocks of companies that fall under the mid-sized market capitalization. These companies rank between 101-250th companies in terms of market capitalization as per SEBI categorization.

Q. What is the minimum investment tenure for Mid Cap funds ?
A. Mid-cap funds do not have any fixed tenure of investment. An investor can stay invested in these funds as per their financial goals & requirements. But it is recommended to stay invested for a longer period to generate high returns.

Q. What is the minimum amount of investment in midcap funds ?
A. The minimum amount of investment varies across different schemes & fund houses. Generally, the minimum amount required to invest in midcap funds is as low as Rs.500.

Q. Are these funds recommended for short-term investors ?
A. No, these funds are generally recommended for investors with a long investment horizon of at least 5-7 years. Over the short periods, the risks could be higher in these funds which may lead to losses in events of market fall if investments are withdrawn after a short time.

Q. How are the gains on midcap funds taxed ?
A. The gains on midcap funds are taxed as per the applicable LTCG and STCG tax rate under the Income Tax Act. The capital gains are taxed on the basis of the holding period of the investors.

If the units are held for more than 1 year, then the gains on selling equity mutual fund units are taxed at the rate of 10% LTCG only on the gains above Rs.1 lakh in a financial year.
If the units are held for less than 1 year, then the gains on selling equity mutual fund units are taxed at the rate of 15% STCG.

More Information:

Best Small Cap Funds to Invest in India
Best Large Cap Funds to Invest in India
Best Multi Cap Funds to Invest in India
Best ELSS Funds to Invest in India
ELSS vs FD
Best Tax Saving Bonds for Investment
What is SEBI
How to Invest in Mutual Funds in India