5 Tips to Choose the Best Midcap Fund

5 Tips to Choose the Best Midcap Fund

Midcap funds invest in mid-sized companies that fall between small caps and large caps on the market capitalization spectrum. These funds offer investors exposure to up-and-coming companies with growth potential, while also providing some stability compared to small caps. Choosing the right midcap fund for your portfolio is crucial to maximize returns. Here are 5 tips to help you select the best midcap fund for your needs:

Tip 1: Look at Long-Term Performance

A fund’s long-term performance over 5-10 years tells you how it has navigated different market environments. Examine the fund’s total returns during bull and bear markets compared to its benchmark and category peers. A steady performance across market cycles indicates that the fund manager sticks to a sound investment strategy. Avoid funds with dramatic swings in performance. You want a fund that consistently delivers solid returns in good times and limits losses during downturns.

Tip 2: Evaluate the Investment Strategy

Understand how the fund manager picks stocks and constructs the portfolio. Active midcap funds rely on the manager’s stock picking skills and usually are relatively concentrated with the top 10 holdings making up 25-30% of assets. Passive midcap funds track an index like the S&P MidCap 400 and offer low-cost, diversified exposure to the midcap segment. Evaluate whether the fund’s investment strategy has proven successful over time.

Tip 3: Examine Holdings and Sector Allocation

Review the fund’s top 10 holdings and sector allocation. For active funds, check if the manager sticks to his/her professed strategy based on the stocks picked. Ensure the fund is well-diversified across sectors or intentionally makes concentrated bets. Avoid funds with excessive exposure to a single sector. For passive funds, the sector allocation should closely mirror the underlying index. Evaluate if the fund provides sufficient exposure to sectors with promising growth outlooks.

Tip 4: Consider Risk Metrics

Check the fund’s standard deviation and beta to gauge volatility compared to the overall market. Midcap funds tend to be more volatile than large cap funds but less risky than small caps. Make sure you are comfortable with the level of risk. Also consider other metrics like R-squared, upside/downside capture ratios and Sharpe ratio to understand how the fund performs in up and down markets. Opt for funds that offer a good balance of risk and return.

Tip 5: Analyse Fees and Expenses

Fund fees directly impact investor returns. Passively managed midcap index funds offer the lowest costs. Compare expense ratios of active funds to similar peers. Also check portfolio turnover which impacts transaction costs. Avoid funds with exorbitant fees, complex fee structures and frequent trading. Go for reasonably priced funds from reputable AMCs.


Picking the right midcap mutual fund requires thorough research and due diligence. Evaluate long-term performance across market cycles, investment strategy, holdings and risk metrics before deciding. Compare fees and select a reasonably priced fund from an established AMC. Invest for atleast 5 years to realize the full growth potential of midcap funds. Stay invested through ups and downs and keep a long-term perspective. Periodically review your fund to ensure it aligns with your goals and risk appetite. By following these tips, you can make a sound decision and invest with demat account in the best midcap fund for your needs.