Mid-cap dedicated funds are one of the most battered categories in last one year, investors are in a dilemma and are confused with regard to their investment decision in mid-cap funds. DSIJ help you understand when, why and how much to invest in mid-cap funds?
Investment in mutual funds, most of the time, is driven by their past performance. Though the past performance helps in gauging the performance of the fund manager, it does not in any way indicate its future performance. This often happens in the case of mid-cap and small-cap funds as these provide exceptional returns when the market is in a bull run, but these fall equally hard when the markets enter a bear phase. So, people often wonder why should one invest in mid-cap funds in the first place? Also, they wonder about when to invest in mid-cap funds and how much to invest in mid-cap funds? Let us answer these questions one by one.
Why To Invest In Mid-Cap Funds?
If we ask you the following, what you will choose? Fund A, a large-cap fund that gave returns of 12 percent, or Fund B, a mid-cap fund that gave returns of 18 percent in the last five years. Surely, you will go with Fund B, the mid-cap fund. Mid-cap funds have greater potential to generate higher returns than large-cap funds in the long run. Technically speaking, mid-cap companies’ space is that space which is often less researched, therefore, it leaves a gap in valuation which, of course, would be different from its fair market value. You may find mid-cap companies to be undervalued during the bear phase. This creates an opportunity for the fund manager to generate that extra returns over and above the large-cap funds and even outperform the benchmark. However, it is to be remembered that this outperformance comes with the risk of losing money in the short term. So, the basic reason behind investing in mid-cap funds is the potential to generate exceptional alpha over the benchmark and large-cap funds. Now that you know why to invest in mid-cap funds, let us find out when to invest in mid-cap funds.
When To Invest In Mid-Cap Funds?
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