One of the best ways to increase the value of your money over time is to invest in mutual funds. Mid-cap mutual funds present a compelling choice for investors seeking to strike a balance between returns as well as risk. Compared to large-cap companies, mid-cap firms have the potential for higher growth, but they are more established than small-cap companies. Selecting the best mid-cap mutual fund schemes can be difficult, though, as there are hundreds of them available. These five suggestions will assist investors in selecting the best mid cap mutual funds based on their investment requirements along with risk tolerance.
1. Analyse the fund manager’s track record
An essential consideration when choosing a mid-cap fund is the track record as well as experience of the fund manager. Consider the fund manager’s tenure with the scheme in addition to their total fund management experience. Examine the fund’s returns over the last three as well as five years as well to see how it has fared in comparison to other funds in the same category along with its benchmark over various market cycles. A solid track record indicates that the fund manager can choose profitable stocks.
2. Understand the fund’s investment strategy
Different mid-cap funds have varying investment approaches depending on the fund manager’s style. Some focus only on pure mid-cap stocks while others have a flexi-cap approach. It is important to understand the fund’s stated investment strategy as well as check if the actual portfolio reflects it. The strategy should align with your risk tolerance along with investment horizon. Funds with concentrated portfolios are riskier than those with well-diversified holdings across different sectors.
3. Consider the fund house and research support
Leading fund houses have larger research teams to analyze companies as well as stronger risk management practices. This allows their fund managers to make informed investment decisions. Check the fund house’s track record, size of research team, investment process as well as performance across different categories. Larger fund houses tend to have more stability but smaller ones can offer niche strategies.
4. Pay attention to portfolio turnover
Frequent trading to book profits increases a fund’s tax liability which is passed on to investors. Very high portfolio turnover may also reflect inconsistent investment strategies. An annual turnover ratio between 20-30% is ideal for a mid-cap fund. You can check the turnover ratio mentioned in the fund factsheet.
5. Evaluate long term returns over short term performance
While 1 or 2 year returns give an idea, evaluate a mid-cap fund’s performance over longer periods of 5-10 years to assess its ability to deliver through different market cycles. Mid-cap investing is more volatile than large caps, so give time for the fund to grow. Look for funds that have consistently beaten their benchmark index as well as category average returns over longer periods.
With these factors in mind, shortlist 2-3 best mid-cap funds and understanding what is nfo mutual fund that match your risk profile as well as investment goals. Continue reviewing their performance periodically as well as rebalance your portfolio when required. Following a disciplined investment process can help investors generate better risk-adjusted returns from mid-cap mutual funds over the long run. Always consult a SEBI registered financial advisor for any investment related queries.