Thinking of investing in mid cap schemes? Don’t forget these important points

investing in MF

Many mutual fund managers believe that it is the right time to invest in mid cap schemes. They say this beaten down segment has some attractive buys at the current valuations. The rally in the market in the last one week also shows that steps taken towards the economic stability will lead to a revival in the mid cap schemes. The mid cap mutual fund category which was in the negative territory for long is offering 9.95 per cent returns in one month.

However, mutual fund advisors say that investors should not jump the gun and invest in mid cap schemes at this point. “Just because experts are saying, you should not start investing. Mutual funds are a goal based investment vehicle. Get in only if you want to stay invested through the ups and down of the market,” says Suresh Sadagopan, Founder, Ladder7 Financial Advisories.

Mutual fund advisors believe that there are some important points that investors need to keep in mind when they are investing in mid cap schemes. The first step is to cover the basic rules of investing in mid cap mutual fund schemes. “You should have a goal that you want to invest for; it can be wealth creation also. Make sure that you have at least seven to 10 years to achieve this goal because mid cap schemes are risky in the short term,” says Neeraj Chauhan, CEO, The Financial Mall.

Investors should also be very careful about their risk profile, which advisors say they are delusional bout. “Now that the market has gone up, everyone would believe that they have the risk profile to invest in these schemes. But, were you willing to invest when these schemes were giving negative returns? If not, then consider evaluating your risk taking ability. Invest only if you are okay to deal with the risk and volatility that comes with these schemes,” says Suresh Sadagopan.

If you have the risk appetite, investment horizon and a set goal, you should invest in mid cap schemes. The question now is which schemes you should choose. Mutual fund advisors have some rules that you should keep in mind when you select a mid cap scheme to invest:

  • Don’t look at short-term past performance: Advisors say that looking at short-term returns in isolation will not give you a clear picture of how these schemes will perform in the longer term. “See how the scheme has done in 10 years, in seven years, in different market cycles. Check risk adjusted returns. How much risk is the scheme taking to generate the high returns? Only by seeing how it has done in ups as well as volatile times, you will get to a conclusion,” says Neeraj Chauhan.
  • Downside protection: According to mutual fund advisors, managing downside is very important in a scheme. “Earning high returns and losing them in a jiffy is not good investment. You don’t need a scheme which tops the return chart in bull markets. You need a scheme which gives good returns but loses less than others when the market falls,” says Suresh Sadagopan.
  • Refrain from taking tactical calls: Don’t select a mid cap scheme to just enter and exit to make money. These schemes might take you by surprise. “You would never know when the market goes up and bottom out. So, don’t lose your money in such practices,” says Neeraj Chauhan.
  • Don’t opt for NFOs: Many investors make the mistake of picking a scheme which has just been launched. If you see a newly launched mid cap scheme and you want to invest in mid caps, you shouldn’t jump at it. The scheme you choose should have a good track record of at least five years,” says Suresh Sadagopan
  • Fund management and cost: Fund managers also advise that you look at the expense ratio and select a scheme which charges the lowest. But this choice should be made among the already selected good schemes. “Don’t go just by the expense ratio. Lower charges along with good track record and a good management team makes a best scheme for you,” says Sadagopan.


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