5 Best Mid Cap Funds for 2024 – Top Performing Mid Cap Mutual Funds in India

November 28, 2023 Mutual Fund

Mid Cap Mutual Funds offer investors the opportunity to create significant long-term wealth. However, not all Mid Cap Mutual Funds are worthy of investment. It is vital to consider only those mutual funds for investment that focus on picking quality stocks in the mid-cap segment. In this article, we bring to you PersonalFN’s list of the 5 Best Mid Cap Mutual Funds for 2024 showcasing strong growth potential.

What are Mid Cap Mutual Funds?

As per the SEBI definition, Mid Cap Mutual Funds are open-ended equity-oriented mutual fund schemes that invest a minimum of 65% of their total assets in equity and equity-related instruments of mid-cap companies’. Mid-cap companies are typically defined as companies ranking from 101st to 250th in terms of full market capitalisation, i.e. the next 150 companies beyond the top 100 companies.

These stocks represent about 15% of the free float market capitalisation of the stocks listed on the NSE. Some of the popular mid-cap names include Persistent Systems, The Federal Bank, Supreme Industries, Coforge, and Cholamandalam Investment & Finance Company.

Examples of Mid Cap Mutual Funds in India

Securities quoted are for illustration purpose only and are not recommendatory
Data as of October 31, 2023
(Source: ACE MF, data collated by PersonalFN) 

Does it make sense to invest in Mid Cap Mutual Funds in 2024?

Mid cap stocks have delivered superlative returns in 2023 and have outpaced their large-cap peers by a remarkable margin. On a year-to-date basis, the Nifty Midcap 150 index has advanced nearly 31% (as of November 24, 2023).

In the last one year, Mid Cap Mutual Funds swelled investors wealth by 28.1%, Large Cap Mutual Funds gained about 12% during the same period. As a result, Mid Cap Funds witnessed massive inflows. The category amassed Rs 18,853 crore in the first ten months of CY 2023.

One of the key factors that boosted gains in the mid-cap segment is the better-than-expected earnings growth. In addition, the resilient growth in the Indian economy, despite fears of a slowdown in certain major global economies, along with cooling inflation worked in favour of smaller companies. It is noteworthy that mid-cap stocks tend to do better during phases of economic uptrend.

Furthermore, the pause in rate hike action by the RBI and the expectation of a subsequent decline in interest rate bodes well for mid and small-sized companies as it can make it easier for these companies to raise capital. High participation from retail investors also resulted in exuberance in mid-cap stocks.

However, amid the meteoric rise in the mid-cap segment, the margin of safety appears to have narrowed.

While the optimistic trend may or may not reverse in 2024, the soaring valuations makes it a case to be cautious. Remember that no market cap can turn out be a winner year after year. Sometimes large caps outperform, and other times it could smaller caps. If the cycle reverses, investors in the mid-cap segment could face losses in the short run.

Therefore, it would be prudent to avoid short-term bets while investing in Mid Cap Funds. Furthermore, avoid going gung-ho with investments and instead ensure that the investments align with your goals and risk-taking ability.

Remember the wise words of Mr Warren Buffett, “Be fearful when others are greedy”.

Watch this video to understand in detail whether you should buy more or sell your Mid Cap Mutual Fund units in the current market scenario:

What are the advantages of investing in Mid Cap Mutual Funds?

Mid Cap Mutual Funds have the potential to deliver superior returns because mid-sized companies are usually in their growth phase. Historical data suggests that Mid Cap Mutual Funds have the ability to outperform Large Cap Mutual Funds over the long term.

Notably, mid-cap companies have better access to capital and various resources when compared to small-caps but fewer opportunities as compared to large-caps. Their management team is also stronger than that of small caps and they adapt to new trends with better ease. They hold the potential to become the large caps of tomorrow.

In addition, investors also get the opportunity to get exposure to certain niche businesses and emerging themes or sectors that may have high future potential.

Moreover, investors have the option to invest in via the Systematic Investment Plan (SIP) that can mitigate the risk and reap the benefit of rupee-cost averaging and compounding of wealth.

Top stock holdings of Mid Cap Mutual Funds

Securities quoted are for illustration purpose only and are not recommendatory
Data as of October 31, 2023
(Source: ACE MF, data collated by PersonalFN) 

What are the risks involved in Mid Cap Mutual Funds?

Mid Cap Mutual Funds invest in emerging companies, and therefore, the risk involved is higher compared to Large Cap Mutual Funds and Large & Midcap Funds, but lower compared to Small Cap Mutual Funds.

Since mid-cap companies have higher growth potential, Mid Cap Mutual Funds tend to outperform their pure Large-cap and even their Large & Mid-cap peers by a significant margin during bull phases.

However, Mid Cap Funds are not as resilient during bear phases. Mid-cap stocks, especially those that are not fundamentally strong, may plunge lower than Large Cap Funds. Keep in mind that mid-cap companies have a limited scale of operation compared to their large-cap peers, lower customer outreach, and limited access to various resources. These factors make them vulnerable to higher risk compared to their large-cap peers, especially during gloomy economic conditions.

This positions Mid Cap Mutual Funds as a high risk – high return investment avenue. On the risk-return spectrum, Mid Cap Mutual Funds are just below Small Cap Mutual Funds and Thematic/Sectoral Funds.

Another risk factor when it comes to investment in Mid Cap Funds is chasing past performance because past performance may or may not sustain in the future.

Who should invest in Mid Cap Mutual Funds?

Mid Cap Mutual Funds are suitable for aggressive investors looking for opportunities to generate substantial long-term wealth. So, if you are willing to take higher risk for better returns, Mid Cap Mutual Funds can be a great choice. It is advisable to have a long-term investment horizon of at least 5-7 years when investing in Mid Cap Mutual Funds.

How much should you consider investing in Mid Cap Mutual Funds?

When deciding the allocation in Mid Cap Funds, it is important to take into account one’s financial goals for which they are investing, their risk-taking ability, and investment horizon. Aggressive investors who can tolerate short-term market volatility for future gains can consider allocating around 25%-30% of their equity mutual fund portfolio in Mid Cap Mutual Funds. The balance can be allocated in Large Cap Funds, Value Funds, Flexi Cap Funds, etc.

On the other hand, investors with moderate risk appetite can consider allocating around 15%-25% in Mid Cap Mutual Funds. Conservative investors and investors who have an investment horizon of less than 5 years should ideally avoid investing in Mid Cap Mutual Funds.

How are Mid Cap Mutual Funds taxed?

Mid Cap Mutual Funds are equity-oriented mutual funds and hence they follow equity taxation. The holding period for Mid cap Mutual Funds from a tax perspective is 12 months. So, if investors sell their Mid Cap Mutual Fund units before 12 months, the gains are subject to short-term capital gains (STCG) tax of 15%.

On the other hand, if they sell their Mid Cap Mutual Fund units after completing one year, the gains are subject to long-term capital gains tax (LTCG) of 10%, but only if the gains exceed Rs 1 Lakh in a financial year.

Which are the best Mid Cap Mutual Funds for 2024?

With a universe of around 28 schemes in the category, identifying the best Mid Cap Mutual Fund to invest in becomes crucial because unlike Large Cap Funds, which more or less invest in the same top 100 companies, albeit in varying allocations, investing in Mid Cap Mutual Fund is a tricky business.

This is because Mid Cap Mutual Funds invest in relatively lesser-known companies that are striving to establish their brand value in the lives of Indian consumers. Also, unlike Large Cap Mutual Funds, where creating alpha is difficult since the investible universe is limited, when it comes to Mid Cap Mutual Funds, the fund manager’s investment style and the strategy they follow can truly make a difference.

This is why, at PersonalFN, we have shortlisted the five best Mid Cap Mutual Funds for 2024 after stringently evaluating each of the schemes on numerous qualitative and quantitative parameters.

Let us now take a look at the five best Mid Cap Mutual Funds for 2024…

List of best Mid Cap Mutual Funds for 2024

Past performance is not an indicator for future returns. The securities quoted are for illustration only and are not recommendatory.
Data as of November 24, 2023. Direct plan – Growth option considered
(Source: ACE MF, data collated by PersonalFN) 

Best Mid Cap Mutual Fund for 2024 #1: HDFC Mid-Cap Opportunities Fund

Launched in June 2007, HDFC Mid-Cap Opportunities Fund is the largest scheme in the Mid Cap Mutual Fund category, having a corpus of Rs 47,846 crore. The fund’s popularity can be attributed to its track record of generating above-average returns across diverse market conditions. The fund has done well under the supervision of Mr Chirag Setalvad, who is known for his high conviction mid-cap and small-cap bets. However, HDFC Mid-Cap Opportunities Fund witnessed a prolonged phase of muted growth between 2016 and early 2020, wherein it occasionally trailed the benchmark and its prominent peers. Nonetheless, the fund has bounced back in the last couple of years to stand strong among its peers.

Fund Snapshot – HDFC Mid-Cap Opportunities Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of October 31, 2023
Returns and NAV data as of November 24, 2023. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

HDFC Mid-Cap Opportunities Fund focuses on identifying long-term growth opportunities in fundamentally sound mid-sized stocks. This enables the fund manager to invest in stocks with high intrinsic value, allowing it more time to realise the growth potential of its investments. Moreover, it avoids momentum-driven bets which helps it reduce the risk, and reward its investors reasonably in the long run. This has enabled the fund to rank high in terms of risk-adjusted returns.

Click here to read our detailed analysis of HDFC Mid-Cap Opportunities Fund.

Best Mid Cap Mutual Fund for 2024 #2: Kotak Emerging Equity Fund

Launched in March 2007, Kotak Emerging Equity Fund is a midcap-biased fund that seeks to identify the hidden growth potential of mid-sized companies. The fund holds a sizeable portfolio of over 70 stocks spread across sectors and picked by utilising a bottom-up investment strategy. The prudent investment strategies have helped Kotak Emerging Equity Fund to exhibit consistency in terms of performance. It holds a noteworthy track record of generating market-beating returns across most time periods.

Fund Snapshot – Kotak Emerging Equity Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of October 31, 2023
Returns and NAV data as of November 24, 2023. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

Kotak Emerging Equity Fund carries an impressive track record under the supervision of Mr Pankaj Tibrewal, who is known for his expertise in the mid and small-cap space. The fund’s focus on identifying high-conviction quality stocks in the mid-cap space and holding it with a long-term view has worked in its favour. Moreover, the fund has delivered well in terms of risk-adjusted returns.

Click here to read our detailed analysis of Kotak Emerging Equities Fund.

Best Mid Cap Mutual Fund for 2024 #3: PGIM India Midcap Opportunities Fund

PGIM India Midcap Opportunities Fund is a growth-oriented mid-cap biased fund that aims to offer greater growth potential as compared to large caps but at a lower volatility and risk as compared to small caps. Launched in December 2013, the fund remained among the underperformers in its first 5 years. However, with a focus on high-quality stocks, it recorded a major breakthrough during the 2020 market crash as well as the ensuing recovery/bull phase, wherein it generated remarkable alpha over the benchmark and outpaced many of its peers.

Fund Snapshot – PGIM India Midcap Opportunities Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of October 31, 2023
Returns and NAV data as of November 24, 2023. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

PGIM India Midcap Opportunities Fund’s performance is driven by prudent investment strategies and backed by strong systems and processes followed at the fund house. The fund is benchmark agnostic; the investments are typically made at the conviction of the fund manager, irrespective of their weightage in the index. PGIM India Midcap Opportunities Fund follows an active investment strategy and has a penchant for churning out a major portion of its portfolio. However, it has shown a lot of patience with many of its quality stocks and sectorial bets, which have paid off its investors in due course.

Click here to read our detailed analysis of PGIM India Midcap Opportunities Fund.

Best Mid Cap Mutual Fund for 2024 #4: Quant Midcap Fund

Launched in February 2001, Quant Midcap Fund is an actively managed small-sized scheme in the Mid-cap Fund category that follows aggressive investment strategies. Despite being relatively small in size, Quant Midcap Fund has registered extraordinary performance in recent years and rewarded its investors with strong gains. Quant Midcap Fund is now a top-performing Mid Cap Mutual Fund with commendable returns across time frames. More importantly, Quant Midcap Fund stands out in the category in terms of risk-adjusted returns.

Fund Snapshot – Quant Midcap Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of October 31, 2023
Returns and NAV data as of November 24, 2023. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

Quant Midcap Fund constantly looks for opportunities across stocks and sectors which has resulted in significant alpha for its investors. The fund is also quick in its approach to shift allocation between market caps depending on the market conditions, though it maintains a mid-cap biased portfolio. Notably, the fund has recorded a higher churn rate of over 90 to 330% in the last one year. Despite its aggressive approach, Quant Midcap Fund has proved its ability to limit downside risk during depressed market conditions even though it has underperformed during bull phases in the past. This highlights the fund’s ability to reward investors with noteworthy gains over the long run.

Click here to read our detailed analysis of Quant Midcap Fund.

Best Mid Cap Mutual Fund for 2024 #5: SBI Magnum Midcap Fund

Launched in March 2005, SBI Magnum Midcap Fund aims to invest in a well-diversified basket of equity stocks of mid-cap companies. During its journey spanning over 18 years, the fund has been through lots of ups and downs. Despite this, SBI Magnum Midcap Fund has generated returns at a CAGR of around 16.9% since its launch. The fund manager avoids taking aggressive bets on any particular stock or sector and exposing investors to unnecessary concentration risk.

Fund Snapshot – SBI Magnum Midcap Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of October 31, 2023
Returns and NAV data as of November 24, 2023. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

The fund stands out for its ability to stem losses during the bearish phase, wherein it has managed to outpace the benchmark as well as many of its peers. However, SBI Magnum Midcap Fund is not a great bull market performer and may occasionally underperform the benchmark and many of its peers. Despite facing bouts of underperformance and significant allocation to stocks in the lower market caps, SBI Magnum Midcap Fund has managed to perform well over complete market cycles and has rewarded investors for their patience.

Click here to read our detailed analysis of SBI Magnum Midcap Fund.

This completes our list of the five best Mid Cap Mutual Funds for 2024. Investors should consider devising a suitable strategy and take exposure in Mid Cap Funds sensibly depending on their risk profile and financial goals.

Related links:

4 Best Large Cap Mutual Funds for 2024 – Top Performing Large Cap Mutual Funds in India

3 Best Liquid Funds for 2024 – Top Liquid Mutual Funds for 2024

This article first appeared on PersonalFN here