Investors investing their money in midcap fund investments have suffered huge losses as market volatility has dragged down the value of most midcap companies. In fact, funds in the midcap fund category have incurred more substantial losses than their large-cap counterparts, resulting in many investors questioning the legitimacy of their investments and inquiring whether a myriad of factors are causing market redundancies. They may experience more pain by sinking deeper into the zone. ,
There is no doubt that midcap schemes suffer a lot when the market goes down. Many investors who have invested in midcap schemes are now looking at pullbacks to save their capital. However, is this temporary panic and panic worth considering?
Already Invested in Midcap Funds?
To begin with, midcap funds are equity mutual funds that invest in stocks of mid-sized companies. Companies ranked between 101 and 250 on the basis of market capitalization are classified in the midcap category.
Those who have invested through Systematic Investment Plans (SIPs) in midcap funds, some of them that have earned high returns in the past, should be aware of the following details. This includes:
investment target
Midcap funds are equity mutual funds in which you should stay invested for at least five years. Expecting returns within the first few months or years is nothing short of foolish. It takes at least five years for the investment to generate good returns, which means you should continue investing in these funds through SIP. Many people stop their SIPs or stop them completely or redeem their investments to avoid further losses. This is a costly mistake when you look at investing from a long-term perspective. Volatility is inherent in most equity fund investments. The current market situation was unpredictable, but that doesn’t mean there will be no end to the uncertainty and ambiguity that investors are facing right now. Emphasizing on regular SIPs is the easiest way to continue your tenure in the market and watch your portfolio returns mature over time.
Return
Midcap funds tend to underperform for some time before adopting the full form giving returns beyond inflation. In fact, long-term investments in midcap funds can help you earn returns over a long period of time. This means that if you want to benefit from this category of funds, you should prepare your mind to stay invested for a longer period, such as 10-15 years.
risk vs return
There is an inherent risk factor which is a deciding factor in terms of returns. Midcap funds are risky as they invest in companies that may either grow into large-cap institutions or may go bankrupt. Before investing their money in these funds, investors should be ready and willing to take the risk.
expense ratio
Managing midcap funds is not easy as fund managers have to continuously churn out portfolio companies to ensure optimum returns while mitigating the risk associated with non-performing constituent companies. This explains why some of these funds charge higher fees than large-cap funds. A high expense ratio can eat into your returns in the long run, which means investors must be willing to pay that extra amount to see their fund’s performance.
Looking to enter the midcap space?
If you are venturing into the midcap mutual fund space, it would be much better if you look beyond the current returns or the current fall in the indices. Check how the investment is performing in adverse market conditions. Find out how your investment of choice has performed compared to its peers. For example, see if they have fallen more than other funds or remain relatively stable. With stocks falling sharply, it’s not unusual for funds to follow suit. The decline may be more pronounced in some funds. Next, you need to check how fast these funds have made a comeback with the rise in the market. One needs to have a longer term outlook before venturing into midcaps.
Viral Bhatt, Founder and Owner, Money Mantra says, “After a fall in equity stocks and a lot of volatility, investors can definitely look at mid-cap funds through the SIP route. We recommend mid-cap equity mutual funds to investors only if you have an investment horizon of at least seven to ten years. If they are planning to invest in options like mid-cap schemes or small-cap schemes, we emphasize that they should have a long investment horizon and a lot of volatility and the ability to withstand short-term losses.
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