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Financial Term of the week- Mid-Cap mutual funds

Mid-cap mutual funds are a type of equity mutual fund scheme that primarily invests in the stocks of mid-cap companies. Securities & Exchange Board of India (SEBI) has categorized various companies based on their market capitalization, which is the market value of all the outstanding shares of a company. For example, if a company has 1,00,000 outstanding shares selling at Rs 25 per share, then the total market capitalization of the company will be Rs 25,00,000. From the perspective of a mutual fund, SEBI has categorized companies as shown below-

Mid-Cap Mutual Funds Categorization

Characteristics of a mid-cap fund

Mid-cap companies are typically the ones that have evolved from being small-cap companies and aspire to become large-cap companies. Mid-cap funds invest at least 65% of their assets in mid-cap companies. During any company’s growth phase, the mid-sized companies may grow comparatively faster than the bigger-sized companies, depending on the market conditions. This is the growth mid-cap funds aim to tap into. Having said that, when the market is correcting, mid-cap funds may further get affected, compared to large-cap funds.

The fund managers of mid-cap funds focus on finding the mid-cap companies with high growth potential based on their study of the company’s values, potential, and strategic decisions. The idea is to invest in a stock that is doing decently well and displaying character, and also has the capability to grow further.

The major characteristics of a mid-cap fund are-

  1. They may have the potential of offering relatively better returns than the large-cap funds
  2. They are riskier than large-cap funds and more prone to volatility
  3. Better suited for longer-term investments and can be volatile in the short-term

Who should invest in mid-cap funds?

Below are the scenarios when you can consider investing in a mid-cap fund-

    :;
  1. If you have a long investment horizon. Investments in mid-cap funds require patience, because mid-cap companies take time to grow. It needs to be a strategic choice that you make. Hence, they are more suitable for life goals meant to be fulfilled in the long term, for example- retirement, child’s marriage etc. You can consider a time horizon of 5-10 years when investing in a mid-cap fund.
  2. If you have the risk appetite to tolerate volatility, mid-cap funds can give you an opportunity to grow your corpus over a long period; but they also come with relatively higher risks than large-cap funds.

First-time mutual fund investors may want to take their time before investing in mid-cap funds, unless done under expert guidance.

Taxation for mid-cap funds

Like any other mutual fund, the capital gains achieved from them are taxable. Mid-cap funds are equity mutual funds and are taxed accordingly-

Short-term capital gains (STCG) tax- If units are held by investor for a period less than 12 months from the date of acquisition, then such gain is taxable at the rate of 15%.

Long-term capital gains (LTCG) tax- If units are held by investor for a period more than 12 months from the date of acquisition, then such gain is taxable @ 10%. There is an additional benefit of Grand fathering of cost and threshold limit of Rs. 1 Lac is available.

Further, Equity oriented mutual funds are subject to STT (securities transaction tax).


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Disclaimer:
Helpful information for investors: All Mutual Fund investors have to go through a one-time KYC (know your Customer) process. Investors should deal only with registered mutual funds, to be verified on SEBI website under 'Intermediaries/ Market Infrastructure Institutions'. For redressal of your complaints, you may please visit www.scores.gov.in . For more info on KYC, change in various details & redressal of complaints, visit mf.nipponindiaim.com/investoreducation/what-to-know-when-investing This is an investor education and awareness initiative by Nippon India Mutual Fund.

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document. Language Disclaimer:
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