Definition of Mid Cap Fund
A Mid Cap Fund is an equity mutual fund that must invest at least 65% of its assets in companies ranked 101st to 250th by market capitalization on Indian stock exchanges. These are medium-sized companies with significant growth potential but more volatility than large caps.
Mid cap funds have historically delivered higher returns than large cap funds over long periods but with significantly higher volatility. They can fall 40–50% in bear markets (vs 25–35% for large caps) but can also recover and compound much faster. A 10–15 year investment horizon is recommended for mid cap funds.
Mid cap funds are suitable as a satellite holding (20–30% of equity portfolio) alongside a large cap or flexi cap core position. They offer the 'sweet spot' between the stability of large caps and the explosive growth potential of small caps, making them a popular choice for aggressive SIP investors.