101–250 Rank range for mid-cap stocks by full market capitalisation | 65%+ Minimum equity allocation in mid-cap companies as per SEBI | SIP The recommended approach for navigating mid-cap market swings |
- Mid-cap mutual funds tend to face higher volatility than large-cap mutual funds because the underlying companies are smaller and not yet well-established.
- SIPs in mid-cap funds may help you participate in the segment across market cycles, averaging highs and lows over time.
- Mid-cap SIPs may also encourage a more disciplined savings approach, reducing chances of panic selling when markets are volatile.
- Planning contributions with a mid-cap SIP calculator, staying invested, and diversifying effectively may also help manage volatility better.
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Indian mid-cap funds tend to face higher volatility than large-cap funds because of where they invest. As per SEBI, mid-cap mutual funds in India must invest at least 65% of their total assets into equity and equity-related instruments of mid-cap companies. These are companies listed from 101–250 in terms of full market capitalisation.
Since mid-cap companies invest in medium-sized, growing companies that tend to be more vulnerable to economic downturns than more established firms. These companies often rely heavily on debt to fund expansion, making them highly sensitive to:
- Changes in interest rates.
- Mid-cap companies have less financial cushion than large-cap companies, which makes them more susceptible to economic downturns.
- Mid-cap stocks are typically less liquid than large-cap stocks, meaning market fluctuations can have a greater impact on their prices.
- Mid-cap companies are often more dependent on a specific sector or product, which means sector-specific downturns can significantly impact their performance.
- Changes in government regulations, inflation, and the cost of raw materials.
- Changes in market sentiment.
All this contributes to greater volatility for mid-cap stocks, which often translates into mid-cap mutual fund returns as well. In this article, we try to understand how SIPs may help manage this volatility more effectively.
