Should you invest in mid-cap funds?

Depending on the types of investors and their different financial goals, there are different types of investment opportunities in the market. If you're looking for long-term growth opportunities coupled with  returns that beat inflation over time,  consider investing in mid-cap funds. Mid-cap funds are equity funds that invest primarily in  stocks of medium-sized companies that can generate higher returns over the long term. Companies ranked  101-250 or higher based on market capitalization are classified as mid-cap companies according to SEBI. 

However, this can be dangerous if you are unaware of the fund's underlying volatility and risk-return proposition. According to the SEBI categorization, these fund types invest at least 65 percent of  total assets in mid-cap income, equities and equity-related stocks. Additionally, experts say mid-caps have the potential to become large companies over time, which is why fund managers select mid-cap stocks , which could develop well in the long term. 

Because mid-cap funds invest mostly in  stocks of mid-sized companies, experts say they're best suited to aggressive investors who are willing to take on higher risks in order to generate superior returns over time. Keep in mind that you can only invest in mid-cap funds if you're willing to invest for the long term to achieve your goals. Long-term investment in mid-cap funds means an investment of at least 7 years or more. 

While these funds have the potential to generate high returns, they are highly volatile and carry significant risks.They are more exposed to price corrections during economic downturns or market volatility. Therefore, conservative investors should avoid investing in this category. Before investing your money in mid-cap funds, review your target investment horizon. Ideally, experts say, one should stay invested in mid-cap funds for at least 5 to  7 years. Invested in the short to medium term, mid-cap funds are a very volatile investment because they invest in  stocks of mid-sized companies.It also offers opportunities to invest in companies that have the potential to grow faster than large, established companies. 

However, investors who are just starting out in stock investing should avoid investing in them at first. It also adds: to mid-cap companies through these funds. A better way to see mid-cap portfolio allocation is by looking at the overall portfolio  market cap. At the overall portfolio level, you see about 2,025 percent in mid caps. 

Warning: You can only invest in mid-cap funds  if they can invest over the long term and fit your own risk profile.