Crucial checklist to follow while investing in mid-cap funds

Crucial checklist to follow while investing in mid-cap funds


Mutual fund investment is an accessible way to build your financial future, whether for a short-term goal or a long-term journey. Different investors have different strategies and risk appetites when it comes to investing. Some have an appetite for high-risk/high-return investments like small-cap funds — and some prefer more stable investments like large-cap funds.

If you prefer something in between with the potential for higher returns than large-cap companies but with less volatility than small-cap companies, mid-cap funds can offer such an opportunity. Mid-cap stocks are stocks of companies that rank within 101–250 by market capitalization and fall somewhere between large-cap and small-cap companies.

While these funds may offer growth potential and relatively less risk, here is a crucial checklist that must be taken into account for a successful investment.

1. Read the fund prospectus before you invest in mid-cap funds

A valuable part of your research should be to closely read all the documents related to the chosen mutual fund, such as its prospectus, annual report, memorandum, etc. Reading these documents thoroughly can help you get insights into various aspects of the chosen fund, such as its portfolio assets, investments made by the fund manager, investment strategy employed, and the expense ratio associated with the fund.

2. Analyse past performance and risk involved

Conduct a past performance analysis on your chosen fund over different time frames, specifically during market fluctuations. This will give you a clear understanding of how well the fund has performed in different market scenarios and what kind of risk you might be exposed to while investing in that particular fund.

Additionally, compare its performance to similar mid-cap funds on different parameters like volatility levels, returns generated, etc. This will help you get better insights into how well the chosen mid-cap fund has performed over time compared to others available within that category.

3. Investment goals

Mid-caps stocks tend to be more volatile than large-caps due to their smaller size and limited resources. So, they may be more sensitive to market movements and incur greater losses during an economic downturn than large-cap companies. Therefore, have realistic expectations when it comes to mid-cap fund returns and a plan for monitoring how your investments perform over time.

Ideally, your goal while investing in mid-cap funds should be to generate returns over the long term for goals like wealth creation, retirement planning, paying for higher education, buying a house, etc.

4. Expense ratio

The expense ratio is the amount charged for running and managing the fund. It is usually expressed as a percentage of total assets invested in the fund – the higher the percentage, the more it will impact your potential returns. Thus, choose a fund with a low expense ratio to prevent your profits from being affected by unnecessary charges incurred from investing in high-cost funds.

5. Consistency of the fund management team is critical

Before you invest in a mid-cap fund, it is important to check the fund management team’s consistency. This means examining how long they have been with the fund and whether there are any frequent changes in personnel. Lack of consistency within a management team could be a warning sign that should not be overlooked, as it could signify underlying issues with the fund.

Furthermore, it’s essential to investigate their performance history and ensure they align with your needs and expectations.

Closing thoughts

Ultimately, no two investors have the exact same financial goals and objectives. Thus, understanding and evaluating your portfolio before investing in mid-cap funds is essential. Creating a checklist that works for you and factoring in your goals, risk tolerance, research, and diversification needs can ensure that your investments are well-chosen and profitable in the long term.