Investing in stocks can be confusing – that’s why funds are categorized to help you mitigate risk and reward. Monika Halan looks into the growing trend of Midcap Funds and what it means for the average investor.
What are mid cap funds?
Market capitalisation is the stock price multiplied by the number of shares outstanding of a company. Midcap companies are companies who have grown to a certain size, and some of them will become large cap companies as they continue to grow.
Why should we pick midcap funds?
There have been 15% returns overall and then some have even delivered 30% plus returns, which is so tempting for an investor. 2017 was the year of the big midcap rally, where again there was exponential return – 20-30% in a year. There were schemes which were giving 45-48% returns and I remember writing and talking about it. In the next two years, 2018 and 2019, you saw negative returns. Actually, values fell, where everyone said that midcaps are all destroyed. Now we are again back at the stage where you’re seeing a midcap rally. So, you know buying a midcap fund for the right reason, which is that you want to diversify your portfolio, you want to take structured risk, and you don’t want to expose your money to individual midcap stocks because the risk is too high.
When you buy a midcap fund, you have 25-30% midcap stocks. Here, risk is spread over these stocks, rather than having 1 or 2 midcaps, which if don’t do well your entire money is gone.
Who should go in for midcap funds?