Investing in mid cap mutual funds has proven to be a solid strategy for investors looking to balance risk and reward. Mid cap funds focus on medium-sized companies that show potential for higher growth than large cap firms but carry less risk than small caps. Over the past five years, some top-performing mid cap mutual funds have delivered stellar annual returns, ranging from 32% to 38%, significantly beating their benchmark, the Nifty Midcap 150 Total Return Index (TRI). Here’s a closer look at why mid cap funds are worth considering and which ones have outshone their peers.
What Are Mid Cap Mutual Funds?
Mid cap mutual funds invest primarily in companies that are classified as mid-sized based on their market capitalization. According to SEBI’s classification, mid cap companies are those ranked between 101st and 250th in terms of market cap. Large cap firms are ranked from 1 to 100, while small caps rank 251 and above.
These mid-sized firms tend to have higher growth potential than large companies, making mid cap funds an attractive option for investors who seek better returns without the volatility often associated with small caps. While the risk level is higher than large caps, mid cap funds strike a balance between aggressive growth and moderate risk.
Why Mid Cap Funds Outperform
Mid cap companies are typically in the growth phase, allowing them to expand rapidly compared to their large cap counterparts. This makes mid cap funds an ideal choice for investors looking to capture the upside potential of emerging businesses. While small cap stocks tend to offer even greater growth potential, they also carry higher risks, such as market volatility and liquidity issues. Mid cap funds, on the other hand, provide a middle ground where investors can enjoy robust returns without taking on excessive risk.
Here are the top 6 mid cap mutual funds that have outperformed over the past five years:
Top 6 Mid Cap Mutual Funds (5-Year Annual Returns)
- Quant Mid Cap Fund (Direct Plan) – 38.66%
This fund leads the pack with an impressive 38.66% annual return over the past five years. It has outpaced its benchmark significantly and remains a favorite for long-term investors. - Motilal Oswal Midcap Fund (Direct Plan) – 34.38%
Known for its focused investment strategy, this fund has consistently delivered high returns while maintaining a solid portfolio of mid cap stocks. - Edelweiss Mid Cap Fund (Direct Plan) – 33.28%
Edelweiss Mid Cap Fund has stood out with its ability to select high-growth mid cap companies, resulting in a return of 33.28% over five years. - PGIM India Midcap Opportunities Fund (Direct Plan) – 33.11%
A fund that has leveraged the growth potential of mid cap stocks, PGIM India Midcap Opportunities Fund has given investors solid returns. - Nippon India Growth Fund (Direct Plan) – 32.20%
This fund has delivered steady returns and has been a consistent performer in the mid cap segment. - Mahindra Manulife Mid Cap Fund (Direct Plan) – 32.18%
Mahindra Manulife Mid Cap Fund rounds out the list with a robust 32.18% return, reflecting the strength of its portfolio choices.
Benchmark Comparison: Nifty Midcap 150 TRI
For context, the benchmark index for these funds, the Nifty Midcap 150 Total Return Index (NIFTY Midcap 150 TRI), has provided an annual return of 31.14% over the same five-year period. Each of the funds listed above has outperformed this benchmark, showcasing their strong stock selection and management strategies.
Why Invest in Mid Cap Funds?
For most retail investors, picking the right mid cap stocks can be challenging, as it requires extensive research and analysis. Mutual funds provide a more accessible way to invest in mid cap companies, as experienced fund managers do the heavy lifting. They analyze companies, make informed decisions, and manage the portfolio to maximize returns while managing risk.
Mid cap funds also offer a degree of diversification, allowing investors to spread their risk across multiple companies, which can be difficult for individual investors to do on their own.
However, mid cap stocks are more volatile than large cap stocks, which means they come with higher risk. As a result, financial experts often suggest combining mid cap funds with large cap funds to create a balanced portfolio. This strategy allows investors to benefit from the growth potential of mid caps while relying on the stability of large caps.
Who Should Invest in Mid Cap Funds?
Mid cap funds are suitable for investors who are willing to take on higher risk in exchange for better returns. They are ideal for long-term investors with a horizon of at least five years, as mid cap companies need time to grow and generate returns. Systematic Investment Plans (SIPs) are a popular method for investing in mid cap funds, allowing investors to build their portfolio over time and take advantage of market fluctuations.
Before investing, it’s important to assess your risk tolerance and financial goals. Mid cap funds can be volatile in the short term, so patience is key to reaping the benefits of long-term growth.
(Disclaimer: The purpose of this article is not to advise investment in any fund, but only to provide information. Investments made in equity mutual funds have a direct impact on the ups and downs of the stock market. Any investment decision should be taken by your investment advisor. Do it only after taking the opinion of.)
