There was a sharp rally in the mid-cap space last year which attracted many investors for this category as they expected similar returns. But such an act can be dangerous if the underlying volatility and risks involved in the fund are not considered. In the stock market, the outstanding shares of a company traded publicly are the market capitalization. Market capitalization is also called market-cap. The formula used for calculating the market cap is the total shares multiplied by the present share price. There are many investment options available in the market according to the different types of investors, their financial goals, and their risk-taking ability. The three types of stocks that you can choose from are as follows:
- Large-cap- The large-cap companies are the most stable in the market. It is considered to be the least risky choice of investment. The return is comparatively low in these companies. It is a conservative option as there is low risk with less aggressive growth.
- Mid-cap- These companies are somewhat stable and have a certain growth. It also has immense growth potential. The risk in investing in these companies is less as they are not fully established. The return expectancy in mid-cap funds is higher than the large-cap funds.
- Small-cap- The companies which have the least market capitalization are the riskiest. They are not yet established and are still budding in the industry. The shareholders may either see sky-rocketing success or a major loss.
Mid-cap funds are long-term growth investment opportunities that give inflation-bearing returns. These are equity funds that mainly invest in mid-sized companies, bearing higher returns. As per the SEBI, the mid-cap companies ranked from 101-250 based on market capitalization. Experts believe that these mid-cap companies can become large companies in future. These companies invest at least 65% of their total assets in securities of equity. It is best suited for investors who are aggressive and are willing to take more risk for higher returns in the long run. Only those who wish to stay invested for the long-term must buy mid-cap funds. The long-term investment lasts for 7 years or more. Let us look at the 5 things to keep in mind when choosing to invest inmid-cap funds/mid-cap funds online:
- Mutual Fund Performance-
The performance of the mutual fund selected by the investor must be consistent. It must maintain a better performance than the benchmark. These funds must have sustained in a better way across the market cycles as compared to its peer category funds and benchmark index. One must observe the performance of different mutual funds in the market for better understanding.
- Fund Manager-
The present fund manager must be responsible for the fund performance. It is because the investors make their investment decisions based on the fund manager. The investors are highly dependent on them. Therefore, an experienced and skilled fund manager increases the potential of better performance and higher returns during the investment.
- Long-Term Investment-
Investors must be ready to stay invested for at least 5 years or more. The mid-cap companies reflect a transition. The investment performance and valuation of such companies are also reflected by their financial performance. It is not advisable to invest in mid-cap companies for a short period to achieve financial goals. Investors who only opt for short-term goals in mid-cap funds fail to find higher returns.
- Risk profile-
Investors must buy mid-cap funds only when they can absorb daily valuation change smoothly. It is advised to look at the long-term performance of the mid-cap fund and not the short term movements. It is not the best option for conservative investors. The risk-taking ability of every investor is different. One must keep in mind that the bigger the risks the higher the chance of high returns.
- Expense ratio-
Investors must keep in mind that mid-cap funds carry several costs of transactions and fund management costs. The expense ratio of the fund is inclusive of all such charges. The costs of the fund management for mid-cap funds are higher as it requires an extensively designed investment portfolio. But investors must look for a fund that has lower expense ratios. The lesser the expense ratio the higher returns. Mid-cap funds witness the growth of mid-sized companies to large-cap. These large-cap companies enjoy the growth of mid-cap companies too. The long-term investors in mid-caps get the most benefit. The mid-cap funds have high volatility but it manages to fetch considerable wealth to investors who remain invested for a long-term. About 20-35% of equity investments are made into mid-cap funds to maintain an ideal portfolio. Returns are subjective. Therefore, one must not copy anyone else in the process. Every investor has different risk appetites and financial goals.