• HDFC
• 26 Apr 2018
• MF Product

HDFC, Tester

Why Midcap Mutual Funds Can Add Kicker To Your Returns!

Midcaps are always an exciting play in the stock market. Often, tomorrow’s blue-chips emerge from today’s midcaps. But should you invest in midcap funds? And what advantages do they add to your portfolio?

 

What are midcap mutual funds?

SEBI defines midcaps as stocks that are in the top 101 to 250 stocks in market cap. The top 100 are classified as large caps. Market capitalization is the value of a company’s total shares put together (total shares x current market price = market capitalization). Midcap mutual funds invest a substantial portion of their corpus in these stocks.

 

Here are four reasons why midcap mutual funds deserve a place in your portfolio.

 

1)    Higher Returns

 

Midcap mutual funds are ideal when the economy is in revival mode. Financial experts say, the returns from midcaps often beat large caps during such times. In a bull run(a sustained rise in stock prices over time) in the market, midcap companies often rise significantly more than large caps. Over the last ten years, returns from good midcap funds have been higher than 16 percent. Of course, with higher returns, midcaps also come with greater risk. They tend to be more unpredictable than large cap funds, which offer greater stability.

 

2)    Growth potential

 

Midcap companies are considerably larger than small-caps. So, they have travelled some distance in their business, which indicates underlying resilience.But, unlike large caps, they have not yet peaked. As a result, these stocks offer potential for growth. Good midcap mutual funds identify stocks that can deliver strong earnings growth and provide superior returns.

 

3)    Good value

 

Midcaps usually trade at discounts to their large cap peers and offer scope for value to be unlocked. Good funds are adept at picking midcaps that are trading at a discount to their value and, therefore, offer potential for upside. But, remember, the midcap space can be very volatile in the short-term. You must have a long-term horizon to allow these funds to play to their potential.

 

4)    Diversification

 

Midcap funds not only offer you a way to diversify your portfolio in terms of market capitalization but also in the breadth of sectors you can invest in. Midcap companies cover a broader range of industries than large cap.

 

Midcap mutual funds can be a great addition to your long-term portfolio. But, make sure you have a mix of funds, including large caps for stability, in our portfolio to balance your risk and return.