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Invest in Top Midcap Mutual Funds In 2022: High Return Mutual Funds In India

Looking to Invest in Top Midcap Mutual Funds? Here is a list of Top Midcap Mutual Funds. Learn about various factors such as returns, risks and taxation associated with Midcap Mutual Funds.

Mid cap funds: One of the best options for wealth creation

Based on market capitalisation, investors can choose to invest in large-cap, mid-cap, small-cap, multi-cap, or flexi-cap mutual fund schemes. In multi-cap and flexi-cap funds, you get exposure across large, mid, and small-cap stocks, which not everyone will prefer. Large-cap mutual funds are relatively less risky than mid and small-cap funds, but their returns may be lower than mid and small-cap funds. Small-cap funds have the potential to deliver high returns but come with very high risks. So, mid cap mutual funds may be a good choice with lower risk than small-cap funds and better returns than large-cap funds. This article discusses how to invest in top midcap mutual funds in 2021.

What is a midcap fund?

Before talking about midcap funds, let us understand mid-cap stocks. As per SEBI guidelines, the top 101st to 250th companies (150 companies) in terms of market capitalisation are known as midcap companies. These companies are a part of the Nifty Midcap 150 Index.

Now that we understand mid-cap companies, let us discuss mid-cap mutual funds. A mid-cap mutual fund is an open-ended equity scheme that predominantly invests in mid-cap stocks. An active mid-cap mutual fund has to invest a minimum of 65% of its total assets in equity and equity-related instruments of mid-cap companies. 

A mid cap index fund has to invest a minimum of 95% of its total assets in the securities of the index (Nifty Midcap 150 Index in case of most mid-cap index funds) that it is replicating or tracking.

Returns given by the best mid cap mutual funds

Let us look at the returns given by some of the top mid cap funds.

Table: Top mid cap mutual funds

Scheme nameAUM (Rs. crores)1-year3-years5-years
Quant Mid Cap Fund26952.07%34.27%22.47%
PGIM India Midcap Opportunities Fund4,36238.87%39.42%22.26%
Axis Midcap Fund16,75423.47%26.43%21.93%
Edelweiss Mid Cap Fund1,86226.87%28.32%19.39%
Invesco India Mid Cap Fund2,20723.15%25.65%19.09%


Note: The returns are as of 14th Feb 2022. The returns are for direct plans with growth option. The one-year returns are absolute. The three and five-year returns are CAGR. The funds have been ranked based on five-year performance.

The above table shows the best mid cap mutual fund has given returns of 22.47% CAGR in the last five years.

Who should invest in mid-cap mutual funds?

Please note that all equity funds are risky, as equity markets, by nature, are risky and volatile. However, mid-cap funds carry a higher risk than large-cap funds and lower risk than small-cap funds. In proportion to the risk they carry, small-cap funds have the potential to give the highest returns, followed by mid-cap funds and then large-cap funds. So, if individuals are willing to take risks higher than large-cap funds but lower than small-cap funds, they should invest in mid-cap funds.

Taxation of mid-cap funds

For taxation purposes, mid-cap mutual fund schemes are treated as equity schemes and taxed accordingly.

  1. Short-term capital gains (STCG) tax: If you sell your mid-cap mutual fund scheme units within twelve months of purchase, the capital gain will be classified as short-term capital gain (STCG). The short-term capital gain (STCG) tax will be levied at 15%.
  2. Long-term capital gains (LTCG) tax: If you sell your mid-cap mutual fund scheme units after twelve months of purchase, the capital gain will be classified as long-term capital gain (LTCG). Every financial year, the first Rs. 1 lakh long-term capital gain will be exempt from taxation. The incremental long-term capital gain above Rs. 1 lakh will be taxed at 10%.

Risks involved in mid-cap mutual funds

Mid-cap mutual funds carry high risk. When the market sentiment is bad during uncertain events, the entire stock market may see a brutal selloff. Mid-cap mutual funds may also see a sharp drop in their net asset value (NAV) during such times. However, during such times, mid-cap mutual funds may see a lower fall than small-cap mutual funds, and a bigger fall than large-cap mutual funds.

Return potential of mid-cap mutual funds

Mid-cap mutual funds have the potential to give inflation-beating high returns to their investors. Mid-cap companies have the potential to grow faster than large-cap companies. Mid-cap companies also have the potential to become tomorrow's large caps. Hence, mid-cap mutual funds can create a lot of wealth for their investors, similar to what they have done in the past. Mid-cap mutual funds can benefit from the power of compounding and generate good returns for investors.

In the table in the earlier section, we have seen how the best midcap fund has given returns of 22.47% CAGR in the last five years. It is an excellent return, and very few asset classes can give this kind of return over a five-year period.

Advantages of investing in mid-cap mutual funds

The biggest advantage of investing in mid-cap mutual funds is creating wealth in the long run that helps in fulfilling financial goals. Mid-cap mutual funds usually fall lower than small-cap mutual funds when the sentiment is bad during an overall equity market fall. When the sentiment turns positive and overall equity markets recover, mid-cap funds recover their losses before small-cap funds and create wealth for their investors.

Reasons to invest in mid-cap mutual funds

The biggest reason to invest in mid-cap mutual funds is that they give you an opportunity to participate in the growth story of some of India's fastest-growing companies. Since these are medium-sized companies, they can continue to keep growing at a faster pace for the foreseeable future before they reach maturity, unlike large-cap companies. During this excellent growth phase, they have the potential to deliver excellent returns to their investors.

Asset allocation: Invest in mid-cap funds along with large and small-cap funds

As part of your asset allocation strategy, you should not have a concentration of mid-cap mutual funds in your investment portfolio. You should diversify your risk by having exposure to large and small-cap mutual funds along with mid-cap funds. However, if you are young and have an aggressive risk profile, you can allocate a higher portion of your investment portfolio to mid-cap mutual funds.

To start investing in mid-cap mutual fund schemes as per your appropriate asset allocation, download the Glide Invest App from Google Play Store or Apple App Store and get started.

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