In the past 10 years, Mid Caps have achieved a tremendous growth in their market share. Also, it is interesting to point out that what is known today as mid cap might not always have been a part of this category. With the expansion of the industry, a large chunk of the small caps got converted into mid and even large cap funds. Having said that, there are certain doubts and misconceptions amongst the investors regarding this line of mutual funds which need to be cleared ASAP. Today in this article, we are going to discuss some of the major difficulties that investors face due to the rumours or false interpretations that have gripped their minds. Also, we’d discuss a 3-step test that you ought to run before looking out to buy a stake in Mid Cap Mutual Funds. So, not keeping the facts clouded for long, let’s just hit the ‘Start’ button! The Word On the Street Mid Caps are an Expensive BuyBefore anybody tries to take his mind towards this notion, there’s a simple question that needs to be answered; What exactly are you comparing the Mid Caps with to claim this theory? The large cap fund? Well if you are, then you are trying to balance apples with oranges. This is because large cap and mid cap mutual fund in India are entirely different indices. If at all there has to be comparison, it shall be done on a narrower scale to understand that Mid Caps aren’t actually expensive. Mid Caps are a Risky Bet
A general mistake that people make is misinterpreting the keywords, which very much includes ‘Risk’. Now, before you were to label something as ‘risky’, you ought to understand the context of risk first. In the realm of mutual funds, risk is not determined on the basis of size but the quality of the businesses. There are high quality midcap businesses existing in India that do not let your funds get exposed to high volatility. Further, experts claim that with India’s growth in the international market, these businesses are going to flourish even more, thus making investments safer. The 3-Step Fund Selection Process For years, top fund managers and industry experts have been studying the market and analysing its reaction patterns to certain changes in the economy. This has led to the invention of many important theories and have helped to develop certain rules regarding investments in mutual funds. And with regards to Mid Cap Mutual Funds, the experts have developed the following 3-step fund selection process: – Quality of the Portfolio
This is by far the most stressed point in any mutual fund related theory. If you are picking Mid Caps for your portfolio, then you got to be sure that their portfolios are of very high quality. The industry norms require every fund house to disclose the portfolios on their website, so you could study them and find for yourself if that particular fund holds quality. Stick to Clean Funds
It has been repeatedly mentioned by SEBI in its guidelines that the investors should always buy a genuine, true-to-label mutual fund. Further, the experts’ views on Mid Cap investments are that if you are buying mid caps, then always look out for the clean products that possess a goodwill in the market and do not pick up anything shabby. The Liquidity
This point is often looked upon as an underdog, but in reality is a very important criteria for deciding on which fund to buy. In depressing market states, the smaller businesses wouldn’t perform well and their situation will worsen. As a result, people would want to redeem their money as quickly as possible and if a fund isn’t liquid enough, it won’t be able to suffice the situation. Thus, the third rule demands that you select only that fund or funds which possess the necessary liquidity. Hence, to be sure that you have made the best investment decision for yourself and that you are right on track of achieving success, it is imperative that you follow the above mentioned process of investing in Mid Cap Funds. For any further clearance, don’t shy away from disturbing your financial advisor.