Data from the Association of Mutual Funds in India (AMFI) shows that the mid-cap category attracted ₹6,940 crore in September, about 37% higher than the investment recorded in the same month last year.
The recent decline in mid-cap stocks has brought the category back into focus for investors with longer investment horizons, while mid-sized companies continue to offer potential for earnings and revenue growth.
What are mid-cap funds?
Mid-cap funds invest primarily in mid-cap companies. Under SEBI’s categorisation, these are companies ranked from 101st to 250th by full market capitalisation.
Mid-cap companies are generally considered to occupy a middle ground between large-cap and small-cap stocks. They have moved beyond some of the early-stage risks associated with smaller companies but can still have greater revenue and earnings growth potential than more mature large-cap businesses.
Mid-cap companies are also present in sectors such as specialised manufacturing, consumer discretionary, healthcare and technology, where some businesses are seeking to gain market share from unorganised players or established market leaders.
While “mid-cap” refers to the size of the companies a fund invests in, a “growth” fund refers to an investment approach focused on companies expected to deliver above-average growth and capital appreciation. A mid-cap fund can therefore follow a growth-oriented investment approach, but the two terms are not interchangeable.
How have mid-cap funds performed?
Long-term returns have been one of the key attractions of the category.
Over a five-year period, the top three funds in the category have delivered more than 20% annualised returns, according to the data provided.
The Nippon India Growth Mid Cap Fund leads with a five-year return of 22.12%, followed by Edelweiss Mid Cap Fund at 21.30% and HDFC Mid-Cap Fund at 21.12%.
The longer-term record also shows strong performance across several major mid-cap funds.
According to Value Research, the following funds delivered these annualised returns over seven years:
| Fund | 7-year return |
| Nippon India Growth Mid Cap Fund | 22.39% |
| HDFC Mid-Cap Fund | 21.82% |
| Kotak Emerging Equity Fund | 20.60% |
| SBI Magnum Midcap Fund | 19.56% |
| Aditya Birla Sun Life Midcap Fund | 17.85% |
| Edelweiss Mid Cap Fund | 17%–19% over 10 years* |
| Invesco India Mid Cap Fund | 17%–19% over 10 years* |
(The source statement provides the 17%-19% range for Edelweiss and Invesco’s mid-cap growth funds over the last 10 years, rather than individual fund-level figures.)
The Nippon India Growth Mid Cap Fund, launched in 1995 as Nippon India’s first mutual fund, illustrates how long-term compounding can affect returns.
According to the data provided, a monthly SIP of ₹1,000 since the fund’s launch would have involved a total investment of about ₹3.72 lakh over 372 months and would be worth around ₹2.70 crore today. The fund has delivered an annualised SIP return of close to 23%, while its CAGR is around 22%.
A lump-sum investment made at the time of launch would have multiplied more than 400 times, according to the figures provided.
These historical returns, however, should not be taken as an indication of future performance. Mid-cap funds can also experience sharper declines than large-cap funds during periods of market stress.
Why do investors look at mid-cap funds?
One reason is the potential for earnings growth. Large-cap companies tend to be more established, while mid-cap businesses can have greater room to expand as they increase their revenues, scale operations and gain market share.
Mid-cap stocks may also receive less analyst coverage than large-cap companies. This can sometimes leave room for fund managers to identify businesses before they become widely followed by institutional investors.
Pankaj Mathpal, Founder, Optima Money, said, “if you look at returns, growth and mid cap funds are labelled as high long-term wealth creator over 5 to 10 year horizons and frequently outperform large-cap benchmarks due to the higher earnings growth trajectory of mid-sized corporates.”
He added, “Unlike large cap stocks that are covered by dozens of global analysts, mid-cap companies often trade at reasonable valuation multiples before being broadly discovered by institutional investors, allowing mutual fund managers to capture strong upside as companies scale up.”
What should investors keep in mind?
The recent correction in mid-cap stocks may make valuations more attractive, but that does not eliminate the risks associated with the category. Mid-cap funds remain market-linked investments and can see significant volatility, particularly when valuations come under pressure or earnings expectations weaken.
Their stronger historical returns have also come with the need for a longer investment horizon. Investors therefore need to assess their risk appetite, time horizon and overall asset allocation rather than choosing a fund solely on the basis of past returns.