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Thinking of Investing in Mid-Cap Funds? Here’s What You Need to Know

If you’re looking to invest in some of the fastest-growing companies in India, Mid-Cap Mutual Funds may offer the right option. With access to high growth stocks that may provide good returns, Mid-Cap Funds are equity funds that invest predominantly in mid capitalised companies. If you have a moderate to high-risk appetite with a long-term investment horizon in view, Mid-Cap Mutual Funds may be suitable for you.

 

Understanding Mid-Cap Funds

Within Equity Mutual Funds, individual stocks based on market capitalization (value of a company that is traded on the stock market) are grouped together. There are three Market Capitalization groups — also referred to as Market Cap groups — Large-Cap, Mid-Cap and Small-Cap.

 

Mid-Cap Funds are those that have a significant portion of their corpus in Mid-Cap company stocks. As defined by SEBI, 101st to 250th company by full market capitalization are mid-caps. A mid-cap fund predominantly invests in mid-cap stocks with a minimum of 65% of the fund’s corpus invested in equity & equity related instruments of mid-cap companies.

 

Why Mid-Cap Funds Are Attractive

 

  • Higher Return Potential: A portfolio of Mid-Cap stocks tends to offer higher growth potential, accompanied by potentially higher volatility. However, investors could mitigate such higher volatility with by investing for a long-term investment horizon.

 

  • Growth Potential: Some of the mid-cap companies operate and cater to niche markets, thereby generating high return on capital. Investing and holding on to such companies could help in earning higher returns and create wealth over a longer period of time.

 

  • Diversification: The spread of the investment across stocks and sectors helps in diversifying the investment portfolio and manage the risks.

 

What You Need To Know About Taxation

Being an equity mutual fund, investment in mid-cap funds are subject to certain taxes.

 

Capital Gains Tax — You may earn capital gains when redeeming the units of a mid-cap mutual fund. However, the rate at which capital gains be taxed may depend on the holding period in the scheme.

  • Short-Term Capital Gain [STCG]: If you have stayed invested in the fund for 1 year or less, the STCG is taxed at 15%.*
  • Long-Term Capital Gain [LTCG]: If you have stayed invested in the fund for more than a year, capital gains are taxed at 10% without indexation benefits. However, LTCG of up to ?1 lakh in a year is exempt from paying taxes.

 

Points To Remember

  • Get to know the fund manager and the performance of the team to understand how your investment would fare.
  • Have an investment horizon of at least 7 years and upwards to benefit from investing in Mid-Cap Mutual Funds.
  • Look into the performance history of the Mid-Cap Fund.
  • Compare the scheme of your choice with its contemporaries to make an informed decision.
  • Stay updated and aware of information impacting Mid-Cap companies to help you decide the future of your assets.

 

Takeaway

It is vital to select quality Mid-Cap Funds that offer experienced in-house research with adequate coverage and sound processes in place to manage risk.

*Tax Disclaimers-

As per the present tax laws, eligible investors (Individual/HUF) are entitled to deduction from their gross total income, of the amount invested in equity-linked saving scheme (ELSS) upto Rs. 1,50,000/- (along with other prescribed investments) under Section 80C of the Income Tax Act, 1961. Subject to prevailing tax laws.

source :https://utiswatantra.utimf.com/article/thinking-of-investing-in-mid-cap-funds-heres-what-you-need-to-know/

*Returns over 1 year are annualized. Returns are shown for 1 year for Top 10 Mid cap funds and below are absolute. Past performance is a not a
guarantee of future returns. Report Date : 31/03/2021. Performance data is as per last published NAV. Source : Accord
Fintech. *Mutual funds investments are subject to market risk. Please read the offer documents carefully before investing.
AUM data is as per last month end.

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