In investing, countless strategies and styles attempt to maximise gains despite an acceptable level of risk. Given the diversity of markets, it is expected that investors are looking to buy shares in individual companies and meet specific metrics instead of seeking to reduce their company-specific risks and invest in funds tracking broad sectors or markets. Let’s look at the mid-cap investing strategies ahead in this article.
Understanding Mid-Cap Funds
Mid-cap funds invest in equity and equity-related instruments of mid-cap companies. According to the BSE, mid-cap companies are ranked between 101 and 250 on the list of companies according to market capitalisation. They offer both advantages and disadvantages since they fall among smaller and larger cap companies. They often seem to outperform the broad-cap funds but usually have greater volatility. By contrast, they may tend to offer a little more stability than smallcap funds while offering lower returns.
Mid-cap mutual funds may be considered as a combination of risk and return. An investor can expect to make gains if he selects these investment plans prudently with a diversified portfolio of stocks, and invests in various sectors.
Mid-Cap Investing Strategies
Some of the mid-cap strategies are as follows.
Mid-cap segment
Mid-cap segment lies in the middle of the business cycle and medium in size, mid-cap enterprises no longer face the same survival risk as their smaller counterparts. Although they are less well-established than household names of the large segment, most midcap companies trade in this group and tend to have decent prospects for future growth.
Value stocks and ETFs from the MidCap
Value investors may look for companies with share prices trading at a discount to their underlying value. To put it simply, value investors try to find companies with a low share price or for sale in relation to what the investor thinks they should be worth. They frequently use financial metrics in determining when a company’s stock is on sale, including the share price, book value, ratio of earnings to cash flow and many other variables. Value investors use all public information and any research insight that is useful. If the share price is lower than the investor’s estimated value, it may stand to become an eligible option for investment.
Growth stocks and ETFs in the MidCap
This is another type of investment strategy often used to invest in companies expected to grow their earnings at a higher-than-average level compared with the rest of the sector or market segment. The high and stable earnings growth suggests that a medium-sized firm could be on its way to be the big one. An investor may believe that share prices of companies they have identified will soon witness a growth in premium. This can reflect an increase in earnings.
Mid-Cap ETFs
Many investors have been using a passive buy-and-hold strategy to obtain widespread exposure in the segment. A possible strategy is to use exchange-traded funds or ETFs, such as a blended midcap ETF with low fees and intended for tracking well-known benchmark Midcaps.
Who Should Invest in Mid-Cap Funds?
A type of equity mutual fund called “mid-cap funds” makes investments in midcap stocks. The stocks of companies that range from 101st to 250th in market capitalisation make up mid-cap stock. Because they are purely equity funds, midcap funds may be bought by investors who want to take the risk inherent in them. In the long run, midcap companies seem to have the scope to achieve substantial returns. There’s also a great deal of volatility in these companies. Moreover, medium-sized companies tend to have considerable growth potential.
Investors may put their money into the well-performing mid-cap funds to achieve long-term funding objectives. Also, mid-cap funds may be invested in by investors with no exposure to short-term volatility. As the companies have favourable growth prospects, it may prove to be a suitable asset for portfolio diversification. Mid-cap funds may be an investment option for investors who seek to accumulate wealth over the long term. However, there is a considerable risk associated with these funds.
Conclusion
Most mid-cap mutual funds invest in small and medium-sized companies. During market upswings, they may deliver a decent rate of return. In the long run, there is potential for considerable gains from medium-cap funds in India. With investments starting from Rs. 500, these funds offer an opportunity for wealth creation. These days, one can now invest in a mutual fund, using renowned platforms like the Axis Mutual Fund App. However, it is essential to note that they also have significant risks. Just like other financial assets, they are subject to severe price fluctuations due to changes in market conditions. iSo, it is essential to do thorough research before investing in Mid-cap funds.