While the current stock market dynamics are dominated by concerns over higher oil prices, the rupee’s weakness, rising US bond yields, and foreign capital outflow, experts believe this is the time investors should consider mid-caps over large-caps and go through the systematic investment plan (SIP) route for wealth creation in the medium to long term.
According to experts, the recent pullback in mid-cap stocks has made this category attractive at current levels.
Mid-cap funds focus on investing in companies that have delivered above-average growth in the past. The key characteristics of this category of mutual funds lie in their emphasis on capital appreciation rather than regular dividend payouts. The category has given strong returns to investors.
For example, the Nippon India Growth Mid Cap Fund Regular- Growth Plan, which was one of the first mutual funds from Nippon India, launched in 1995. If an investor had done a lump-sum investment of ₹1,00,000 when the fund launched, that would be worth ₹4.3 crore today. The fund has delivered a CAGR of close to 22%, meaning a one-time lump-sum investment made at launch has grown nearly 425 times.
The Nippon India Growth Mid Cap Fund has also never gone below its face value of 10 in the last 3 decades. In the last 5 years, the top 3 funds in the category have all given 20% plus returns. Nippon India Growth Midcap Fund leads the table with 22.62%, followed by Edelweiss and HDFC Midcap Fund at 21.30% and 21.12%, respectively.
Among other funds in this category, HDFC Mid Cap Fund Regular Growth has given an annual return of 17% since its launch in 2007. SBI Midcap Fund has delivered an annualised return of 16% since its inception in 2005. Annualised returns of Kotak Mid Cap Fund and Edelweiss Mid Cap Fund, both launched in 2007, are 14% and 13%, respectively, as of 9 October 2026.
Why are experts positive on mid-cap funds?
The mid-cap category is considered attractive since it lies in the sweet spot between growth and stability.
“If you look at returns, growth and mid-cap funds are labelled as high long-term wealth creators over 5 to 10 year horizons and frequently outperform large-cap benchmarks due to the higher earnings growth trajectory of mid-sized corporates,” Pankaj Mathpal, Founder- Optima Money, said.
“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,” Mathpal added.
G Chokkalingam, the founder and head of research at Equinomics Research, underscored that in the short-to-medium term, mid-cap funds are likely to continue to outperform large caps.
Chokkalingam explained that aggressive buying of large-cap stocks by domestic institutions and retail investors has only facilitated the exit of FIIs from large-cap stocks.
He believes FIIs may not return to domestic secondary markets as long as the rupee remains weak. Unless global oil prices fall significantly, the rupee is unlikely to recover. There are no immediate signs of conflict resolution, which is necessary for oil prices to fall.
Moreover, the influx of retail investors is another positive for the mid and small-cap segments.
“New retail investors continue to enter capital markets at the rate of 5 to 7 lakh per week. Retail investors largely focus on small and mid-cap stocks. This fact can cause continuity in the outperformance of small and mid-cap stocks over large caps. Thus, preference over small and mid-cap funds makes sense in the short term,” Chokkalingam added.
“In the long term, mid-caps tend to give better returns as there is a huge number of deep value stocks, growth stocks and stocks which provide acquisition opportunities. Many companies have unique business models in this space, which are not available in the large-cap segment. Hence, in the long term, these funds tend to outperform,” said Chokkalingam.
V K Vijayakumar, Chief Investment Strategist at Geojit Investments, underscored that midcaps can grow faster than largecaps, since most of them are in high-growth segments.
An important reason for their superior performance is that many midcaps are under-researched and under-owned, unlike large caps, which are thoroughly researched and mature businesses.
“Good mutual funds with strong research discover potential midcap winners, enabling them to deliver superior returns compared to large caps, in the long run. However, returns will be affected if investors make lump-sum investments in these funds at peak valuations. Therefore, the ideal strategy for optimum returns would be to invest in midcaps through the SIP route,” said Vijayakumar.
Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
