Best Mid Cap Mutual Funds: Benefits, Risks & How to Invest

When discussing equity Mutual Fund investments, choosing the right scheme focusing on market capitalisation is essential in achieving your investment goals. Researching about a company's market capitalisation helps understand the advantages of investing in it and assess the risks involved. You will find various types of equity Mutual Funds categorised based on their company’s market capitalisation, including large-cap, mid-cap and small-cap. This blog will explore what mid-cap funds are, how they work and their benefits.

What are Mid-Cap Funds?

Mid-cap funds invest a majority of their assets in equity-related instruments belonging to mid-cap companies. According to the Securities and Exchange Board of India (SEBI), mid-cap companies rank between 101 and 250 based on their market capitalisation. Since these companies fall between small-cap and large-cap companies, they offer benefits and involve risks of both.

Although they have better growth potential than large-cap funds, they are also more volatile. They are more stable but offer lesser returns than small-cap Mutual Funds. To summarise, mid-cap funds provide the perfect balance between return and risk. As investors, if you select mid-cap schemes wisely, including an ideal selection of fund managers, stocks and sectors, you can receive better returns.

Features of Mid-Cap Funds

Here are a few benefits of investing in mid-cap funds:

Long-term investment

Most investments in equity Mutual Funds are volatile. Hence, investing in them for a longer period helps in securing good returns. Since mid-cap companies are in their growth phase, they have higher chances of turning into large-cap companies in the future. Hence, aim for an investment horizon of around ten years to benefit from mid-cap stock investments

Professional fund management

 Fund managers are experts who decide about buying or selling stocks from your portfolio. Therefore, choosing an experienced fund manager ensures putting your money in safe hands. Look at the fund house's past performance over the years and see how the team has handled market volatility till date

Expense Ratio

A fund house charges Expense Ratio as their fund management and administrative cost. Although it is a small percentage of the total fund assets, the SEBI mandate does not let the expense ratio go beyond 2.5%. Therefore, look for a mid-cap fund with a lower Expense Ratio, resulting in better investment returns

Suitability

 As an investor, you can enjoy better compounding benefits from mid-cap equity funds. However, achieving this requires time and patience. Young investors starting early get the maximum benefits from these investments. If you are approaching your retirement age, choose the funds carefully while keeping your age and earning years in mind. When planning to invest through SIP, ensure that you can afford the instalments conveniently.

How do Mid-Cap Funds work?

Mid-cap Mutual Funds are riskier than large-cap funds. Hence, opt for these funds only if you have a high-risk appetite. Moreover, you must have an investment horizon of around ten years. Remember, mid-cap companies hold many opportunities for wealth creation and investment. Hence, after researching the market, you must choose a scheme with good investment opportunities. If you have a low-risk appetite, reconsider investing in these funds. Also, consider your investment horizon, risk preference and financial goals before investing in a mid-cap fund.

List of Mid Cap Mutual funds

ICICI Prudential Midcap Fund

ICICI Prudential Midcap Fund is a mid cap equity mutual fund with a fund size of ₹6,421 crores. It has delivered a strong annual return of 25.59%, making it a good choice for long-term investors. The fund carries moderately high risk and is ideal for those with a 5+ year horizon. The expense ratio is around 1.04% for the direct plan.

Quant Mid Cap Fund

Quant Mid Cap Fund is known for its aggressive investment style and has a fund size of ₹9,032 crores. It delivers 30%+ annual returns (varies yearly) and is suited for investors with a high risk appetite. The fund has a relatively low expense ratio of 0.64% (direct plan). It actively changes sectors and stocks based on market trends, making it highly dynamic. Ideal for investors seeking high returns and who can handle short-term volatility.

Motilal Oswal Midcap Fund

Motilal Oswal Midcap Fund is a well-established mid cap mutual fund with a large AUM of ₹30,401 crores. It offers a remarkable annual return of 33.15%, making it one of the top performers in its category. The expense ratio is approximately 0.68% (direct plan), which is very competitive. The fund focuses on quality mid-sized companies with strong financials and proven business models.

Nippon India Growth Mid Cap Fund

Nippon India Growth Mid Cap Fund is one of the oldest and most popular mid cap funds in India. It has a large corpus of ₹36,836 crores and has delivered an impressive 28.83% annual return. The fund is high-risk and suitable for investors who want to grow their wealth significantly over the long term. Its expense ratio is around 0.71% (direct plan), slightly higher but justified by strong past performance.

*Disclaimer: All figures are as of 30 June 2025 and are subject to change. Past performance is not indicative of future results.

Benefits of investing in mid-cap Mutual Funds

Both short and long-term investors prefer investing in mid-cap investment schemes for their higher returns compared to large-cap funds. The following are the key advantages of investing in mid-cap Mutual Funds:

Opportunity for wealth creation

 Generally, mid-cap companies are stable in their business model with ample growth potential. So, these investments often generate greater value for investors if invested for a long time. Hence, they are the greatest investment options for investors with medium to long-term investment horizons

Investment diversification

 Diversification in the investment portfolio safeguards your capital against harmful volatility effects. By diversification, we mean spreading your capital investments among different stocks and sectors. Since mid-cap funds invest money in multiple sectors, they expose your capital to fewer risks

Liquidity

 Usually, mid-cap investments are open-ended. That means you can withdraw your funds anytime you need money. However, making withdrawals before one year attracts an exit fee

Handling by professional fund managers  

Expert fund managers manage Mutual Funds on behalf of investors. Moreover, asset management companies recruit experienced finance professionals to create research teams. With a mid-cap Mutual Fund scheme, you can avail their professional expertise for free

Low investment requirement

Mid-cap Mutual Funds start from Rs500 for SIPs and Rs5,000 for lumpsum investments. You can start investing in these funds with a small amount and build wealth over time

Accessibility

A wide range of investors can access mid-cap Mutual Funds, thanks to their investment in SIP schemes with low investment requirement. Due to high accessibility, they are suitable investment options for both institutional and individual investors.

Points to consider while investing in a mid-cap Mutual Fund

Fund performance: Before investing, it is crucial to check the fund’s past performance for one, three and five years. Compare them with the category average and benchmark to make an informed decision. Funds that consistently deliver high returns have higher chances of delivering similar returns in the future as well. However, a fund’s past performance does not guarantee its future returns

Expense Ratio

The Expense Ratio is the fee a fund house charges for managing your funds. Choose a fund manager with a low expense ratio to get the most returns and build more wealth. Therefore, check the fund manager's Expense Ratio before investing and compare it with the expected returns

Investment horizon

Mid-cap funds are most suitable for investors with long-term investment horizons and financial goals. Due to their high volatility quotient, they may not deliver high gains in the short term

Entry and exit load

While mid-cap funds often do not have an entry load, they have an exit load when you withdraw them before one year of investment. Check the policy document to know these figures.

Why Should You Invest in a Mid Cap Mutual Fund?

Here are the key reasons to choose mid cap mutual funds:

1. These funds focus on investing in medium-sized companies that have strong growth potential.

2. These funds offer a more balanced mix of stability and higher returns when compared to other fund types.

3. They are suitable for investors with a moderate risk appetite and a long-term horizon. It means these funds tend to perform well during market expansions, often outpacing large cap funds.

4. Over time, mid cap funds are known to deliver significant capital appreciation. However, due to moderate volatility, it’s important to stay invested for at least 5 years.

Taxation Rules of Mid Cap Mutual Funds

Mid cap mutual funds are taxed based on the holding period.

• If you sell units within 12 months, the gains are considered Short-Term Capital Gains (STCG) and taxed at 15%.

• For units held over 12 months, the gains qualify as Long-Term Capital Gains (LTCG). LTCG above ₹1 lakh per financial year is taxed at 10% without indexation.

• Any dividends received are added to your total income and taxed as per your income tax slab rate.

So, your actual tax burden will depend on both your investment duration and your overall income profile.

Selecting the right Midcap Funds

1. Assess your Investor Profile

Your investment strategy should reflect your risk tolerance, investment horizon and financial goals. Active Midcap Funds, for instance, may suit those who are willing to take on more risk for potentially higher returns.

2. Look beyond past performance

While past performance can be indicative, it shouldn't be the sole criterion. No fund consistently maintains a top-ranking position over the years. It's more important to understand the fund's strategy and how it aligns with current market conditions.

3. Fund Manager's expertise

Assessing the fund manager's track record and approach is crucial. A skilled manager can navigate market fluctuations effectively and pick stocks that have the potential to outperform.

4. Performance consistency

Consistency in returns, especially in different market conditions, is a vital indicator of a fund's reliability.

6. Understanding Rolling Returns

Rolling Returns give a more comprehensive view of a fund's performance over different periods. This approach smooths out the irregularities of exceptional performance in a single year.

7. Market Capture ratio

This metric helps us understand how the fund performs in different market conditions. A higher up-market capture ratio and a lower down-market capture ratio are desirable traits.

8. Cost of investment

Consider the expense ratio and other associated costs of the fund. Higher costs can eat into your returns over time.

9. Fund size and liquidity

The size of the fund and its liquidity matter, especially in the midcap space where stock liquidity can be an issue. 

10. Diversification within the fund

A well-diversified midcap fund can lessen risks associated with investing in a single sector or a few stocks.

By adhering to these Midcap Fund tips, investors can enhance their chances of selecting a fund that not only aligns with their financial objectives, but also lessens risks effectively. Remember, the right fund selection is a step towards achieving long-term financial success.

Midcap Fund Tips

• Do your homework: Before investing, it’s essential to conduct thorough research. Understanding the fundamentals of each fund, such as its past performance, the credibility of the fund manager, investment strategy and how it has fared during different market phases is crucial. This due diligence helps in making an informed decision.

• Long-term perspective: Midcap Funds often require a longer investment horizon to realise their full potential. These funds might experience volatility in the short term, but typically offer substantial growth opportunities in the long run. Patience is key when investing in Midcap Funds.

• Avoid Herd Mentality: Investing in a fund merely because it is trending or popular in the moment can be a risky approach. Market trends are fleeting and what works for others may not align with your investment goals or risk appetite. Each investment decision should be based on individual research and suitability.

• Consult Financial Advisors: For those who are uncertain about the right choice or how a particular Midcap Fund fits into their overall investment plan, consulting a financial advisor is advisable. Professional advice can provide tailored recommendations based on an individual's financial situation, investment goals and risk tolerance.

Mid-cap funds are the best investment instruments for investors with a long-term horizon. However, before investing, check their past performance, fund manager’s profile, current portfolio, expense ratio and entry or exit load to maximise returns. Invest in them through SIPs to achieve your financial goals conveniently.

FAQs

Are mid cap funds a good investment?

Yes, mid cap funds are a good investment for long-term goals. They offer higher growth potential than large cap funds but come with moderate risk, making them suitable for investors seeking better returns with some market exposure.

Is it safe to invest in a mid cap mutual fund?

Mid cap funds carry moderate to high risk. They’re less stable than large caps but safer than small caps. It’s safe if you invest for the long term and can handle short-term market ups and downs.

How much capital do I need to invest in mid cap funds?

You can start investing in mid cap mutual funds with as little as ₹100–₹500 through SIPs. For lump sum investments, the minimum is usually ₹1,000. Ultimately, the amount depends on your budget and financial goals.

Are mid cap funds good for the long term?

Yes, mid cap funds are ideal for long-term investments. This is because they are known to offer strong growth potential and may outperform large caps over time. However, it is important to hold your investments for 5 years or more so that it can easily manage risk and maximise returns.