What Makes Mid-Cap Funds A Better Choice?

Given the historical tendency for mid-cap funds to outperform large-cap funds in the long run, it's plausible that mid-cap funds can continue their performance from this point onwards. This makes investing in mid-cap funds a good choice. The article highlights how mid-cap funds have performed and the associated risks

Since the beginning of this year, equity indices have been on a remarkable ascent, particularly the broader equity market indices. For instance, the Nifty Mid-Cap 150 index has surged by 23 per cent year-to-date, a remarkable contrast to the single-digit returns offered by large-cap indices like Nifty and Sensex during the same period. Following a pendulum-like pattern, mid-cap stocks are emerging strong in FY24 after exhibiting subdued returns in the previous financial year of 2022-23. This resurgence is already evident in the past few months.

Historical trends reveal a recurrent pattern where mid-cap indices bounce back with superior returns after periods of subdued performance. For instance, in 2013, the Nifty Mid-Cap 150 yielded negative returns, only to generate over 50 per cent returns in the subsequent year, 2014. A similar trend was observed in 2015 and 2016, where mid-cap returns were modest, but then experienced a surge of over 50 per cent average returns in 2017. Therefore, the year 2023 is poised to be another favourable year for mid-cap investments.

The evolution of investors as mature ones in India owes much to proactive regulatory measures and the guidance provided by intermediaries. This maturity is evident in investors’ approach towards the mutual fund landscape as they gravitate towards opportunities for wealth creation. Over the last year, ending in July 2023, the number of folios, indicating unique investors in the category, has grown significantly from 94 lakhs to 1.13 crore, marking a substantial increase of around 18 lakhs or 20 per cent. This surge highlights the growing interest and participation of investors in mid-cap investments over the past year.