How to Analyze Mid Cap Mutual Funds?

Mid cap funds are those mutual funds that predominantly invest in stocks of companies with medium market capitalization. These funds fall in the sweet spot between large cap and small cap funds and are known to offer promising capital appreciation over the long run. 

How to analyze a mid cap fund?

If you want to invest in a mid cap fund, you need to first analyze the fund to deter whether it holds the potential to help you get closer to your life’s long-term financial goals. Here’s how you analyze the effectiveness of a mid cap fund:

Check for the fund’s past performance

If you want to invest in mutual funds for wealth creation, you need to do some background check about these market linked schemes before investing. A mid cap fund’s past performance says a lot about the fund’s futures potential. Investors are expected to check whether the mid cap fund they are planning on investing in has a streak of offering consistent capital gains. It is completely alright for a fund to not be a top performing fund. It is always better to invest in a consistent performing fund rather than pursuing a top performing mid cap fund.

Check for the fund’s expense ratio

Recurring costs for owning a mutual fund add up to its expense ratio. The fund house collects these expenses from mutual fund owners in the form of expense ratio. An expense ratio is the fee that an investor has to pay to the AMC for owning that fund. Depending on the AMCs reputation and its experienced management, the expense ratio for owning a mid cap fund may vary from one fund house to another. The expense ratio may not seem like a big amount at the time of investment, but a high expense ratio might affect your long term capital gains. Hence, investors need to be sure that they invest in a mid cap fund that has a feasible expense ratio.

Fund management

For those who do not know, mutual funds like mid cap funds are professionally managed funds that offer active risk management. It is the duty of the fund manager to buy and sell securities those an applied investment strategy in such a way that the scheme is able to outperform its underlying benchmark. Only a team of experienced fund managers clubbed with an elite team of market researchers and analysts might hold the potential to help a mid cap scheme achieve its investment objective. Hence, make sure that you invest in a mid cap fund owned by a reputable fund house.  

Investment objective of the fund

Just like we as investors have hopes and aspirations on our investments, a mid cap fund too has its investment objective that it wishes to achieve in the long run. It is necessary for your investment objective to align with that of the scheme. For example, if you have short term goals to achieve, a mid cap fund might not be the right investment avenue. You may have to settle with a debt fund or any other type of short term schemes. Make sure that the mid cap fund you are about to invest in follows an investment strategy that will help you with your investment objective. 

Risk appetite of the mid cap fund

When you analyze a mid cap fund to understand its true potential you also need to understand the risks that this investment carries. One should only invest if their appetite for risk allows them to invest in a mid cap scheme. You need to understand that equity funds like mid cap are prone to short term losses. However, they tend to outperform when remained invested for five years or more. 

These were some of the common points of analysis for mid cap funds. However, it is always a good idea to consult a mutual fund advisor before investing.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s