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2 mins Read | 5 Months Ago

Best Midcap Fund Tips to Select a Midcap Fund for Investing

High dividend-paying stocks & Mutual Fund schemes

Investing in Midcap Funds has become a popular choice among investors looking for a balance between the growth potential of small-cap funds and the stability of large-cap funds. Over the past decade, Midcap Funds have delivered impressive returns, averaging close to 20% annually. This blend of reasonable volatility and robust growth makes them an attractive option for diversifying a long-term portfolio. However, with a vast range of Midcap Funds available, choosing the right one can be challenging. This guide provides tips to select the right kind of Midcap Funds and help investors navigate this space.

Understanding Midcap Funds

Midcap Funds invest in mid-sized companies that are not as large as the blue chips but are larger than small-cap companies. They offer a unique combination of growth potential and stability: better growth prospects than large-cap funds and less volatility compared to small-cap funds.

Categories of Midcap Funds

There are three primary categories of Midcap Funds:

  • Active Funds: Here, fund managers actively select stocks intending to outperform the benchmark

  • Index Funds: These funds mimic the performance of a midcap index, like the Nifty Midcap 150

  • Factor Funds: These can be active or passive and select stocks based on specific factors like value, momentum or quality.

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.

  1. 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.

  1. 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.

  1. Performance consistency

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

  1. 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.

  1. 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.

  1. Cost of investment

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

  1. 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. 

  1. 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.


Selecting the right Midcap Fund requires a balanced approach that considers various factors beyond just past performance. It’s about understanding your financial goals, assessing the fund's management quality, consistency in performance and being mindful of costs and market conditions. By following these Midcap Fund tips, investors can make informed choices that align with their long-term investment strategies, thereby adding a robust growth component to their portfolios.

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