Mid Cap Funds Explained: What You Need to Know!

When investing in mutual funds, there are multiple categories, and we often hear about the big names—large-cap giants and newly entered small-cap companies. But what lies between them are mid-cap funds. A sweet spot to benefit from both worlds and enhance your investments.

In this blog, let us explore the mid cap mutual funds meaning, the constituents, how it differs from other types, why you should invest, and much more.

Keep reading to learn about mid cap companies you never heard of!

What Is Mid Cap Fund?

A Mid-Cap Fund refers to a mutual fund that invests in mid-cap companies, which have a market capitalization of Rs. 30,750 – 90,907 Crore. This fund mainly targets those companies that drop between 101 and 250 in the list of market cap released by SEBI (Securities Exchange Board of India). For example, Bikaji Foods Ltd, Whirlpool of India, Reliance Infrastructure, Doms, and Bata India are a few of them.

Think of a mid-cap fund as the middle child of the stock market, with the pros and cons of large-cap (elder sibling) and small-cap companies (younger sibling).

Now, understanding stock market language, these companies are not as massive as large-cap firms nor as risky as small-cap ones. These are majorly growing companies that have surpassed the hustle stage and are proceeding towards the mature stage.

(Note: The definition of market capitalization for Mid Cap Funds is subject to change every 6 months.)

Understanding Mid Cap Mutual Funds Meaning: How does it work?

By mid-cap mutual funds, it's clear that this fund looks for mid-cap companies that have been in the market for a considerable time. The fund manager then invests in equity or equity-related instruments of such companies to enhance the portfolio. However, the primary stage is always pooling funds from investors like you and then investing them.

When it comes to diversification, the common myth is always investing in single-sector mid-cap companies. But, at the micro level, the fund manager tries to spread the investments among different sectors like technology, energy, construction, FMCG (Fast-Moving Consumer Goods), and similar others. As a result, the overall risk is balanced across a range of mid-cap stocks.

Over time, as these companies grow, their stock prices increase. In return, the Net Asset Value (NAV) of the mid-cap mutual fund also climbs.

Difference Between Mid-Cap, Small-Cap, And Large-Cap Funds

Let us now look at the difference between mid-cap mutual funds, followed by small-cap and large-cap funds.

	Large Cap Funds	Mid Cap Funds	Small Cap Funds
Company Size	Top 100 companies by market cap (as per SEBI).	It covers 101st to 250th companies by market cap.	It includes 251st and beyond by market cap.
Market Capitalization	Generally ₹91,000 Cr and above.	Between ₹30,7500 Cr – ₹90,907 Cr (approx.)	Usually below ₹30,000 Cr.
Risk Level	Low to moderate	Moderate to high	High
Return Potential	Stable but relatively lower returns.	Balanced growth with good return potential.	High return potential but with higher volatility.
Volatility	Low	Medium	High
Growth Stage	Mature companies	Growing companies	Emerging or early-stage companies
Ideal For	Conservative investors looking for stability.	Moderate risk-takers seeking growth.	Aggressive investors seeking high long-term gains.
Examples (India)	Reliance Industries, TCS, and HDFC Bank.	Blue Dart Express, Reliance Infrastructure, Bikaji Foods, Ola Electric Mobility, etc.	Raymond, Spicejet, Tata Steel Long Products, and Greaves Cotton.

Why Invest in Mid-cap Funds: Pros

Investing in mid-cap mutual funds offers a unique opportunity—especially for High Net-Worth Individuals (HNIs) who have access to a wide range of high-yielding instruments. But amidst private equity, PMS, and structured products, why should mid-cap funds still be on your radar?

The answer lies below!

Balanced Risk-Return Profile

Mid-cap mutual funds are a sweet spot between large-cap safety and small-cap aggression. It proves ideal for portfolio diversification. You can cover varied mid-cap stocks across multiple industries within the same market cap.

Strong Upside

Compared to the rest of the market, mid-cap companies are in a growing phase proceeding towards maturity. It means investing in these funds can offer higher capital appreciation over time.

Alpha Generation Opportunity

Unlike large-caps, many mid-caps are under-researched, and often not tracked and unknown to many. As a result, skilled fund managers take this chance to discover under-valued mid-cap companies and generate alpha.

Enhances Liquidity

Unlike private equity or PMS, mid-cap mutual funds provide daily liquidity with low minimum investment. You don’t have to wait for the lock-in period to mature to redeem your investments. Also, the control over investment horizon and redemption option stays with the investor.

Things To Consider Before Investing In Mid-Cap Fund

Now that you're well-versed with what is mid cap fund and how it benefits, don't miss these points before investing.

Your Risk Appetite

Mid-cap funds carry moderate to high risk. Make sure you're comfortable with short-term market fluctuations.

Investment Horizon

These funds have a long-term outlook, ideally 3 to 5 years or more. Do consider it to ride out volatility and realise meaningful gains.

Fund Manager's Experience

Check the experience and track record of the fund manager. A well-managed fund can make a significant difference in performance.

Performance History

Look at the fund's long-term performance, especially across different market cycles. Also, evaluate how consistently it has delivered returns over the horizon.

Expense Ratio

A high expense ratio can dissolve your returns. Choose funds with a reasonable cost structure for better gains.

Liquidity & Exit Load

Also, understand how you can redeem your units and whether there's any exit load for early withdrawals. If yes, do compare and precisely choose the mid cap mutual fund provider.

Volatility Tolerance

In market sessions, mid-cap funds can turn more volatile than large-cap funds. Ensure you're prepared for short-term market swings.

Your Financial Goals

Last but not least, aligning the portfolio to your goals is the ultimate goal. Whether it's retirement planning or wealth preservation, look for what suits your goals.

Final Thoughts

Amidst the various equity funds available, mid-cap funds are similar to a hedge instrument. From the small-cap yields to the stability of large-cap funds, these mid-cap mutual funds offer a balanced risk-reward ratio for HNIs and other investors. But like any investment, they require careful planning.

By understanding your risk appetite, your goals, and evaluating the fund's fundamentals, you can make smarter, more confident decisions. If you're unsure where to start, reach out to a mutual fund provider for more personalized guidance.

Disclaimer: The information provided in this article is for educational and informational purposes only. Any financial figures, calculations, or projections shared are solely intended to illustrate concepts and should not be construed as investment advice. All scenarios mentioned are hypothetical and are used only for explanatory purposes. The content is based on information obtained from credible and publicly available sources. We do not guarantee the completeness, accuracy, or reliability of the data presented. Any references to the performance of indices, stocks, or financial products are purely illustrative and do not represent actual or future results. Actual investor experience may vary. Investors are advised to carefully read the scheme/product offering information document before making any decisions. Readers are advised to consult with a certified financial advisor before making any investment decisions. Neither the author nor the publishing entity shall be held responsible for any loss or liability arising from the use of this information.