How Mid-cap funds work for beginners

As a new investor, you are wary of investments that carry a high element of risk. Checking out mid cap mutual funds should be worth your while.

New investors are excited and nervous about starting their market investment journey. On the one hand, they wish to see their investment growing steadily over the years, but on the other, they wish to accrue negligible losses.

As a new investor, you may have been offered the option of investing in mid cap mutual funds. This article explains why this investment option may be perfect for you.

Exploring mid-cap funds…

As the name suggests, mid cap funds are mutual fund schemes that invests in stocks of mid-cap companies. These companies are chosen based on their emerging status in their sector. Their status – still growing, not too small and not large enough to be classified as large cap – means that they show a potential for more growth. Your money earns higher appreciation over the long term with mid cap funds.

Do purchase mid cap mutual funds from a leading fund house in India. These funds are professionally managed and well-researched. They also offer higher diversification across different sectors, which minimises their risk. As a new investor, these are the exact factors you are looking for in your investment.  

Why new investors should invest in mid-cap mutual funds

  1. As a new investor, you must create diversification and depth in your portfolio. Mid cap funds help you achieve both these objectives, particularly when you also choose a few large cap funds.
  2. Mid cap equity funds show higher potential for growth but also for risk. You can stay invested for a longer time so that the fund beats inflation and reduces the risk potential.
  3. We are assuming that you are relatively young, upwardly mobile and have a stable income. You fit the profile of the ideal mid cap mutual fund investor, who uses the fund money to realise long term objectives like planning children’s higher education, personal retirement, etc.
  4. Other factors that decide whether you should invest in a mid cap equity fund are your age, risk profile, valuation gap, standard deviation not exceeding 50% (in relation to market volatility), and your investment goals.
  5. Another benefit that mid cap mutual funds offer you is that of liquidity. They are more liquid than small cap funds, but the exit load charge might be more. There is also less analyst coverage than large cap funds.

If you’re not sure…

It is never a prudent strategy to invest heavily in one asset class, or opt for the same kind of fund scheme. In layman’s parlance, it is known as ‘putting your eggs in one basket’ and that’s never a good idea with investments! The best way to handle any risks and losses associated with mid cap funds, is to buy good large cap funds. Your fund manager can advise you on this course of action much better.

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