Equity mutual funds look promising to investors with their lucrative growth potential over time. A proper knowledge of different mutual funds can help you understand the perks of investing in them as per the associated risks. As you explore different types of equity MF, to help you with the same, in this article, we will cover mid cap funds. They are one of the mutual funds that have risen in popularity. We will also discuss whether mid cap funds are suitable for a short-term horizon.
What Are Mid Cap Equity Mutual Funds?
Mid-cap mutual funds are those which invest in companies with medium market capitalization. These funds offer potential growth opportunities with a moderate risk level. As per SEBI, mid cap companies are ranked between 101 and 250 in the list of companies based on market capitalization.
Mid cap companies come between large and small cap ones. This brings a mixed bag of advantages to investors. Usually, mid cap funds deliver higher returns compared to large cap funds. However, they are more volatile, which makes them risky for short-term investors.
Usually, mid-cap equity mutual funds will suit you if your investment horizon is between 8 to 10 years. Investors can find the best performing mid cap funds on reputed platforms like Dhan. Although they are more stable compared to small cap funds, they offer lower returns compared to them.
Factors to Consider When Investing in Mid Cap Funds
Let’s analyze the factors to consider for short-term investments in equity mutual funds.
1. Volatility
Factors like market sentiment, economic conditions, and company-specific news make mid-cap funds more volatile compared to large-cap ones. Considering an investment window between 1 to 3 years, short-term investments in mid-cap funds can be risky due to price fluctuations.
2. Risk Tolerance
Investing in the short term involves a higher risk tolerance compared to long-term investment horizons. Mid-cap funds, with their potential for growth and volatility, may not be perfect for investors with a low-risk tolerance. If you are looking for stability over short periods, debt funds can be a safer avenue.
3. Market Conditions
The performance of mid-cap funds largely depends on economic cycles and market trends. Adverse market conditions may affect the performance of a stock in the short run, but companies tend to recover over a longer period. An investment period of up to 3 years might prove inadequate for mid-cap companies to recover.
Considering the factors discussed above, mid cap funds aren’t suitable for extremely short periods. Therefore, if you are planning to invest in mutual funds, look out for safer alternatives.
Conclusion
While mid cap mutual funds can offer substantial growth potential, they aren’t the best pick for all short-term investors. Considering factors like volatility and market conditions, it’s wise to look out for alternative investment avenues for the short term.
Explore the best-performing mutual funds on Dhan and plan your investment, prioritizing your goals. Considering your risk tolerance, financial goals, and investment horizon, choose the right fund and grow your wealth!