Best Mid Cap Mutual Funds 2025

What are Mid Cap Mutual Funds ?

Mid-cap mutual funds invest in mid-sized companies. Mid-cap stocks are categorised by SEBI (Securities and Exchange Board of India) as those companies that rank from 101st to 250th on the stock exchange.

This ranking is based on their market capitalisation. So, when you invest in a mid-cap mutual fund, your fund manager is deploying your funds to mid-sized companies. SEBI has mandated mutual fund houses to invest at least 65% of their investments in equity & equity-related instruments of mid-cap companies. 

Mid-cap funds create a balance between small-cap and large-cap funds. Since these stocks include mid-sized companies they are relatively less risky than small-cap funds and have a higher return potential than large-cap funds. 

According to recent data, mid-cap funds have delivered average returns of 22-32% over the past 5 years, though performance varies significantly among fund managers.

Benefits of Mid Cap Mutual Funds

Mid-cap mutual funds invest in companies that are typically past their initial growth phase but still have significant potential for expansion. They offer a balance between the stability of large-caps and the high growth potential of small-caps. Let’s look at the key benefits for an investor looking to invest in a mid-cap fund:

• Higher Growth Potential
  Mid-cap companies are often in a dynamic growth phase, expanding their market share, introducing new products, or entering new markets. This can lead to faster revenue and profit growth compared to established large-cap companies, potentially offering higher returns for investors.
• Diversification Benefits
  Investing in mid-cap funds can provide valuable diversification to a portfolio that might otherwise be heavily weighted towards large-cap stocks. Mid-cap companies often operate in different sectors or have different market dynamics than large-caps, which can help reduce overall portfolio risk.
• Innovation and Agility
  Mid-cap companies are often more agile and innovative than their larger counterparts. They can adapt more quickly to changing market conditions, embrace new technologies, and capitalise on emerging trends, which can drive significant growth.

Disadvantages of Mid Cap Mutual Funds

Here are three risks associated with mid-cap mutual funds:

• Higher Volatility Compared to Large-Caps:
  While less volatile than small-caps, mid-cap stocks can still experience greater price swings than large-cap stocks. Their businesses might be more sensitive to economic cycles, competitive pressures, or company-specific news, leading to more significant fluctuations in fund value.
• Liquidity Concerns:
  Mid-cap stocks generally have lower trading volumes than large-cap stocks. In situations where a large number of investors want to redeem their units from a mid-cap fund, the fund manager might face challenges selling underlying stocks quickly without impacting their prices, potentially affecting the fund's Net Asset Value (NAV).
• Less Established Track Record:
  Compared to large-cap companies, mid-cap companies may have a shorter or less consistent track record of profitability and market leadership. This can introduce a higher degree of uncertainty regarding their future performance and resilience during challenging economic periods.

Should I Invest in Mid Cap Mutual Funds?

If you’re on the fence about investing in mid-cap mutual funds, you must first understand the properties of mid-cap mutual funds. These funds offer the perfect middle ground for investors looking to balance risk with growth. But like every investment, aligning these funds with your goals, risk appetite, and financial plan is essential. 

Mid-cap mutual funds invest in mid-sized companies that have evolved from being small-cap and are aiming to reach the level of a large-cap company. Here are some factors to consider when laying down a plan on whether you should invest in mid-cap mutual funds or not.

Investment Horizon

Mid-cap mutual funds are a suitable investment choice for people who stay invested for at least 5 to 7 years. This is because mid-cap companies are still emerging and remain susceptible to market volatility in the early stages. For instance, if you pick mid-cap mutual funds and see their 3-year and 5-year returns, you would see these funds might have underperformed in the beginning, but over time, they have smoothed out.

Risk Appetite 

Mid-sized companies are still evolving and are more sensitive to market fluctuations than large-cap funds. This is because, during market downturns, the valuation of these companies is more likely to shift rapidly due to high selling pressure. So, if you’re someone who panics every time the market tanks a little, consider investing in lower-risk funds.

Liquidity 

Mid-cap funds invest in mid-sized companies, which might not be as liquid as large-cap stocks. This means fund managers may struggle to quickly buy or sell these securities without significantly impacting their prices. For example, if you invest in a mid-cap mutual fund, during market downturns, you’ll notice that the valuation of your assets in the fund has dropped significantly more than that of a large-cap fund, which makes selling these funds difficult.

If you’re looking for a sweet spot between risk and reward in mutual funds, mid-cap mutual funds might be a good choice for you. To summarise, to invest in these funds, we recommend you have a high risk tolerance and stay invested for at least 5 to 7 years.