When it comes to growing financial resilience, mid-cap mutual funds deserve a position in most portfolios. Particularly, if you’re looking for that sweet spot between stable large caps and volatile small cap funds, mid cap funds emerge as the perfect avenue.
In this blog, you’ll come to know why mid cap funds are often preferred for their risk-reward balance.
5 Reasons Why Mid Cap Funds Offer The Perfect Risk-Reward Balance
Considering the growth potential, balanced risk, and sectoral diversification that mid cap funds offer, investors must include them in their portfolio.
1. Growth Potential
Mid cap companies are at a growth stage. They are stronger than small cap funds, but still brimming with opportunities to expand. Many of these companies are leaders in niche sectors, or innovators expanding into untapped markets.
Investors putting their assets in mid cap funds can participate in this phase, where the earning visibility of the company is improving and margins are expanding. Historical trends reveal that mid cap stocks often outperform in bullish market cycles since they grow faster than their larger peers.
2. Balanced Risk
As an investor, you value the balance between growth and stability. While large cap mutual funds are stable, this consolidation often comes at the cost of lower returns. On the other hand, small caps carry a high growth potential, but you risk your funds in volatile markets.
Mid cap funds like Edelweiss Mid Cap Fund and more help investors establish that equilibrium, offering the best of both worlds. These companies provide greater resilience compared to small caps due to their stronger financials and established operations. Yet, they aren’t as stable as large cap funds, which gives them a moderate risk profile.
3. Sectoral Diversification
One of the prime advantages of including mid-cap funds is their ability to spread your assets across various key sectors. You can gain exposure to a broader range of industries like manufacturing, chemicals, healthcare, retail, logistics, and consumer goods. Due to this spread, investors can reduce their dependence on a handful of industries.
4. Early Access to Potential Leaders
Every large cap giant you see on the stock market today was once a mid cap company. When you think from the other end, this implies investing in mid cap stocks early gives you access to potential market leaders of the future.
The real advantage is about catching these stocks during their high growth and discovery phase. With mid cap mutual funds, you invest in companies when they still have significant upside potential. So, as these companies expand their footprint and strengthen their balance sheet, investors benefit from their growth in earnings and re-rating of valuations.
5. Enhancing Portfolio
Investors prefer adding mid cap funds to their portfolio to balance them, which improves their overall performance. These funds complement large caps as they introduce higher growth opportunities.
At the same time, they balance out the extreme volatility of small cap funds. Thus, mid cap mutual funds serve as an effective tool for investors to diversify, with a medium to long-term horizon.
Conclusion
Mid cap funds bring you the perfect risk-reward equation. You stand a higher growth potential compared to large caps, while they are less volatile compared to small cap funds. The best part is the diversification across the most dynamic sectors in India.
With mid cap funds, you get the opportunity to invest in future market leaders early. Consider your risk potential and financial goals as you strike the right balance between ambition and prudence.
