Time and again investors are confused about Investing in mid-cap funds! Well, before investing, it’s important for an investor to have an in-depth knowledge about mid-cap funds. Mid-cap funds invest in mid-sized companies. Stocks held in mid-cap funds are the companies that are still developing. These are mid-size corporates that lie between large and small cap stocks. They rank between the two extremes on all important parameters like company size, client base, revenues, team size, etc. Let's see mid-cap funds in detail.
There are various definitions of mid-caps funds in the market, one could be companies with a market capitalization (MC= no of shares issued by the company X market price per share) of INR 500 Cr to INR 10,000 Cr. From a standpoint of the investor, the investing period of mid-cap funds should be much higher than large-caps due to the nature of the companies.
When an investor invests in mid caps for a long term, they prefer those companies that they think will be tomorrow's runway successes. Also, the more the investors in mid-cap stocks, the more it tends to grow in size. Since the price of large caps has increased, big investors like Mutual Funds and Foreign Institutional Investors (FIIS) are increasingly investing in mid-caps.
In fact, mid-cap stocks outperformed both large cap and small cap stocks in 2015, due to lower input cost, lower interest rates and improvement in capital reduction. The BSE mid-cap and BSE small-cap index surged
7.43% & 6.76%, respectively, whereas, BSE Sensex fell 5.03% during the same period of time.
Moreover, companies that are small or mid-sized are flexible and can adapt changes faster. That is why such companies have more potential of higher growth. Some of the most emerging, mid-cap companies in India are- Blue Star Ltd., Bata India Ltd., City Union Bank, IDFC Ltd., PC Jeweller Ltd., etc.
Some of the benefits of investing in mid-cap funds are:
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In order to make a better investment decision in Equity Funds, one should understand the fundamental differences between its types, i.e.- large cap, mid cap funds, and small cap funds. Hence, discussed below-
Large cap invests in those companies that have the potential of showing year on year steady growth with high profits. Mid-cap funds invest in mid-sized companies. Investors who invest in mid-cap usually prefer those companies that are future’s runaway success. Whereas, small cap companies are generally younger companies or startups that have a lot of scopes to grow.
Large cap companies have a market capitalization of more than INR 1000 crore, while mid caps could be companies with a market cap of INR 500 Cr to INR 1000 Cr, and a market cap of the small cap could be less than INR 500 Cr.
Infosys, Unilever, Reliance Industries, Birla, etc., are a few well-known large cap companies in India. Some of the most emerging, i.e. mid-cap companies in India are Bata India Ltd, City Union Bank, PC Jeweller Ltd, etc. And some of the well-known small-cap companies in India are Indiabulls, Indian Overseas Bank, Just Dial, etc.
Mid cap and small cap funds are more volatile than Large cap funds. Large cap mutual funds tend to outperform both mid and small cap funds during the bull market.
Mid-cap funds have a high volatility. They carry more risk than large-cap funds. That’s why, an investor who can bear high-risk in their investment should only prefer investing in this fund. Also, at the end of the day returns also depends on your tenure. The longer you invest, the higher will be the returns.
Historically, mid-caps have shown to perform better than large-caps in a blooming market, but they can fall when the markets dip. Ideally, investors who want to invest in mid-caps or equities should take a SIP (Systematic Investment plan) route to bolster long term market return.
Once you begin investing monthly in a SIP for a longer period of time, your money starts growing every day (being invested in the stock market). Systematic Investment Plan helps you to average your purchase cost and maximise returns. When an investor invests regularly over a period, irrespective of the market conditions, he would get more units when the market is low & less units when the market is high. This averages out the purchase cost of your mutual fund units.
As per the Budget 2018 speech, a new Long Term Capital Gains (LTCG) tax on equity oriented mutual funds & stocks will be applicable from 1st April. The Finance Bill 2018 was passed by voice vote in Lok Sabha on 14th March 2018. Here’s how new Income Tax changes will impact the equity investments from 1st April 2018.
LTCGs exceeding INR 1 lakh arising from redemption of Mutual Fund units or equities on or after 1st April 2018, will be taxed at 10 percent (plus cess) or at 10.4 percent. Long-term capital gains till INR 1 lakh will be exempt. For example, if you earn INR 3 lakhs in combined long-term capital gains from stocks or Mutual Fund investments in a financial year. The taxable LTCGs will be INR 2 lakh (INR 3 lakh - 1 lakh) and tax liability will be INR 20,000 (10 per cent of INR 2 lakh).
Long-term capital gains are the profit arising from selling or redemption of equity funds held more than a year.
If Mutual Fund units are sold before one year of holding, Short Term Capital Gains (STCGs) tax will apply. The STCGs tax has been kept unchanged at 15 percent.
|Equity Schemes||Holding Period||Tax Rate|
|Long Term Capital Gains (LTCG)||More than 1 Year||10% (with no indexation)*****|
|Short Term Capital Gains (STCG)||Less than or equal to a year||15%|
|Tax on Distributed Dividend||-||10%#|
*Gains up to INR 1 lakh are free of tax. Tax at 10% applies to gains above INR 1 lakh. Earlier rate was 0% cost calculated as closing price on Jan 31, 2018. #Dividend tax of 10% + Surcharge 12% + Cess 4% =11.648% Health & Education Cess of 4% introduced. Earlier, education Cess was 3%.
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Top-performing Mid-cap Funds in India with AUM above 200 Cr are as follows:
Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 5 YR (%) 2018 (%) Kotak Emerging Equity Scheme Growth ₹37.857
₹4,028 7.9 5.3 -3.3 12.4 18.5 -11.7 L&T Midcap Fund Growth ₹129.19
₹4,503 4.9 -1 -8 14.5 17.7 -12 Sundaram Mid Cap Fund Growth ₹456.269
₹6,029 7 2.9 -8.8 9.9 15 -15.4 Motilal Oswal Midcap 30 Fund Growth ₹24.8662
₹1,391 9 6.6 -1.2 7.6 16 -12.7 Franklin India Prima Fund Growth ₹929.738
₹6,889 4.9 3.7 -3.4 11.1 15.7 -9.4 DSP BlackRock Midcap Fund Growth ₹53.323
₹6,074 6.7 4.6 -3.4 13.5 16.1 -10.2 BNP Paribas Mid Cap Fund Growth ₹31.139
₹735 7.6 2.8 -4.5 8.3 13.4 -17.5 HDFC Mid-Cap Opportunities Fund Growth ₹53.451
₹22,244 6.8 3.8 -5.2 12.6 15.5 -11.2 SBI Magnum Mid Cap Fund Growth ₹71.5508
₹3,637 6.2 2.7 -6.9 5 13.6 -18 Aditya Birla Sun Life Midcap Fund Growth ₹279.47
₹2,343 6.8 0.1 -8 9.1 14 -16 Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 21 May 19
Mid-cap funds can be worth adding to your investment portfolio. But, consider the returns that they can deliver. However, one thing you need to re-think on is— “Not every mid-cap can be tomorrow’s large cap."
So, choose your investment wisely!
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