Should you invest now in mid cap funds?

Investing in mid cap funds in India is always a good investment decision since these could be particularly beneficial in the present scenario. Along with lower risk levels and comparatively higher returns, mid cap funds ensure diversification of the portfolio as well. These funds usually deliver stellar returns whenever the markets are on an upward curve. They are slightly different from tax saving mutual funds.

Investing in these mutual funds means that you have the possibility of earning higher returns and this is what draws investors. However, the markets impact these funds strongly in case of any crashes or major fluctuations and this gives rise to confusion on their suitability as an investment choice.

Should you invest in mid cap mutual funds in India?

If you have been revisiting your financial planning strategies and mutual fund investments, you must have considered mid cap funds in the present scenario. Here are some key aspects that you should know about the same.

• Risk levels- Risk levels are on the higher side for mid cap funds. They are volatile and have higher market risks although the returns are sometimes excellent to say the least. Those with higher appetite for risk may consider investments in these funds. An investment in large cap equity funds may help in spreading out some risks but this is not always possible with mid cap fund investments. With higher possibilities of returns, the risk levels are also considerably on the higher side. Always consider your financial position, future goals and appetite for risk before making this investment.
• Performance levels- Prior to taking any decision on your investment, you should carefully learn more about the earlier performance of any specific mid cap fund. Average performances of funds should be carefully compared for at least 3-5 years. Earlier performance is not the only indicator of good performance but this always helps. If you are planning to remain invested for the long haul, you can consider checking out year-wise performance of any particular fund that you are interested in.
• Return optimization- Remember that mid cap funds will invest capital throughout multiple industries, sectors and securities for return optimization. Some funds will add small cap funds to their core portfolio of mid cap funds while some will back this up with large cap funds as well. The strategy of the fund house matters in terms of optimizing overall risks while returns will fluctuate on the basis of the duration and investment sector among other factors.

You should keep overall mid cap fund exposure in the portfolio to a maximum of 25-30% for keeping the investment basket diversified and yet safeguarded from risks as much as possible. Invest the remainder in other financial plans that work for long-term goals. You can set up SIPs or systematic investment plans on a monthly basis for investing fixed amounts each month in mid cap funds.