Companies are classified based on their capitalization of the market. Thus companies are categorized in the following three tiers: small-cap, mid-cap, large-cap. We are going to talk about Mid-cap funds in this article.
Mid-cap mutual funds are those funds which lie in between large-cap and small-cap mutual funds. Mid-cap fund is a fund in which investments are done with companies having capitalization in the middle range of stocks. Don’t do direct investments with Mid-cap stocks, invest money in Mid-cap funds. This will reduce the risk.
Things you should know before investing money in Mid-cap mutual funds:
- Risk craving of an investor: In comparison with large-cap funds, mid-cap funds have more risk factor. An investor should know his craving for risk and then according to his craving for the risk he should choose his fund with proper care. Mid-cap funds are less risky in comparison with small-cap funds but on comparing them with large-cap funds we will find that mi-cap funds have less risk than large-cap. This means large-cap funds are the riskier ones.
- History of the fund: If you want to get a large number of returns from mid-cap funds than you should evaluate the past performance of this fund in all the required parameters. You can compare the returns of different years. If the fund has produced many good returns then you can choose this fund.
- Time horizon: If you want to invest money for a short time then choosing mid-cap funds is not a good choice. AN individual must have a time of 5+years to get good returns.
- Choose an experienced manager: You should take advice about investment from an expert or from a manager who has experience. The mid-cap fund is quite risky so there is a need for analysis. Thus you should pick an experienced fund manager for yourself who can help you in this regard.
- Fund’s expense ratio: For managing the asset of company fee is charged by an asset Management Company annually. While choosing a fund you need to keep in mind that you should choose to select a fund which has low expense ratio as funds having a higher expense ratio will decrease Net asset value of the fund which in turn decreases your returns.
Advantages of investing money in Mid-cap funds:
- Decent returns: The mid-cap funds provide you with good returns but these returns are volatile in the short run.
- High growth capacity: Mid-cap funds have high growth capacity. Sometimes mid-cap companies are provided with a good platform for growth. Investing in such companies produces high returns.
- Liquidity: Amount of money gathered in mid-cap funds is liquid. The investor can sell these funds easily whenever required. This fund is very beneficial during the time of emergencies when you need liquid cash.
Thus before investing in any type of funds you should take the guidance of an expert or keep the given things in mind so that you can get maximum benefits by investing money in Mid-cap mutual funds.