Midcap Mutual Funds: The Middle Path to Wealth Creation

In the vast universe of mutual funds, midcap mutual funds often go unnoticed by new investors. While large-cap funds promise stability and small-cap funds offer high growth potential (and volatility), midcap funds sit strategically in between — offering a compelling blend of growth and resilience.

What Are Midcap Mutual Funds?

Midcap mutual funds invest primarily in mid-sized companies — those ranked between 101st and 250th by market capitalization on the Indian stock exchanges (as defined by SEBI). These are companies that have moved past the volatile early stages of growth but haven’t yet reached the scale of blue-chip giants.

Typical examples include names like Voltas, MRF, Persistent Systems, and Trent — companies that are well-established, innovative, and growing fast.

Why Consider Midcap Funds?

1. Higher Growth Potential

   Mid-sized companies are often in their rapid growth phase. This makes midcap funds capable of delivering higher returns than large-cap funds over the long term.

2. Diversification Benefits

   Midcap funds are a good way to diversify your portfolio beyond large-cap companies. They often include businesses from sectors and niches underrepresented in large-cap indices.

3. Sweet Spot of Risk and Return

   While they are more volatile than large-caps, midcaps are generally less risky than small-cap funds. For investors with a moderate risk appetite, they strike a fine balance.

Performance Snapshot

Over the last 10 years from June 2015 to June 2025 the Midcap Nifty 150 index has give a CAGR of 18.2% compared to ~12.6% provided by Nifty 50. On a monthly SIP basis, the midcap index has delivered a CAGR of 20.8% compared to ~14.7% for Nifty 50. A monthly SIP of INR 10,000 in Nifty midcap index started in June 2015 would have resulted in a corpus of INR 18.03 lakhs  as compared to INR 12.74 lakhs in the Nifty 50, hence your corpus would have been higher by almost 41%.

Midcap funds offered by Kotak, Invesco, Nippon, Motilal Oswal are amongst the ones that have consistently beaten the Midcap Nifty 150 index and created wealth for investors.

In terms of risk, in 2018 and 2019, the maximum drawdown over previous years for Nifty Midcap 150 index was 21.9% and 24.4%; whereas the same for Nifty 50 was 4.7% and 9.4%. Hence, risk averse investors should cautiously decide on an allocation they would be willing to make to midcaps for chance of higher returns in the long run.

Who Should Invest in Midcap Funds?

• Young professionals looking for wealth creation over the long term.

• Seasoned investors who want to add some aggression to their otherwise conservative portfolios.

• Anyone with a 5+ year investment horizon and moderate-to-high risk appetite.

Risks Involved

Like all equity-oriented funds, midcap mutual funds come with their own set of risks:

• Higher Volatility: Midcaps can be hit harder during market downturns than large-caps.

• Liquidity Concerns: During market stress, selling midcap stocks can be harder than large-caps.

• Sector Exposure: Some midcap funds may have concentrated bets in specific sectors like IT, consumer goods, or manufacturing.

Tips for Investing in Midcap Mutual Funds

1. Invest via SIP

   Systematic Investment Plans help you ride out volatility and build wealth over time with rupee-cost averaging.

2. Avoid Short-Term Bets

   Midcap funds may underperform in the short term. Stick with a minimum 5-year horizon.

3. Diversify

   Don’t put all your equity money into midcaps. Use them as a satellite holding, not your core portfolio.

4. Review Annually

   Midcaps can change character. Monitor your fund’s performance and reallocate if needed.

Final Thoughts

Midcap mutual funds in India have consistently delivered strong returns for patient investors who understand the risks and stay invested. They offer the perfect middle ground — enough growth to be exciting, but enough maturity to be (relatively) stable.

If you're building a diversified equity portfolio in 2025, don't ignore the power of the middle. Midcap mutual funds might just be your ticket to long-term wealth — riding India’s growth story from the sweet spot.