Understanding the mid cap meaning is an important step for investors in India exploring options beyond the large players. Mid cap company stocks are in the middle range of market capitalisation. SEBI identifies mid cap companies as those ranked from 101st to 250th by full market capitalisation.
Mid cap companies in India may offer the potential for wealth creation, especially over the long term, and may provide balance between the relatively stable nature of large caps and the higher growth potential, along with greater volatility, associated with small caps.
This article will guide you through what mid cap stocks benefits may include, how they compare with other categories, and how you might explore the most suitable mid cap investments for your goals.
Table of contents
Characteristics of mid cap stocks
Mid cap stocks ranked roughly 101st to 250th by market capitalisation, tend to have some defining traits.
- Growing businesses in expansion phase: These companies may be in their expansion phase, offering potential gains as they scale operations, enter new markets, or innovate their product offerings.
- Balanced risk profile: They generally strike a balance between high volatility of small caps and relative stability of large caps.
- Opportunities from less visibility: Often less researched than large caps, mid cap companies may offer potentially undervalued opportunities for well-informed investors.
- Dynamic responsiveness: Their performance is often shaped by both domestic and global economic shifts, making them responsive to broader market changes.
Also Read: What are Large and Mid Cap Funds?
Mid cap market capitalisation range
SEBI doesn’t define absolute cut-offs, but AMFI classifies companies as:
Large caps are companies ranked 1 to 100 by full market capitalisation.
Mid cap companies rank 101 to 250.
Small cap companies rank beyond 250.
Why look at mid cap investments?
Investing in mid cap stocks may offer several potential opportunities.
- Growth potential: These firms might grow faster than large established businesses, possibly offering potential returns that are higher than large cap stocks. They also come with higher associated risk.
- Diversification: Having exposure to mid caps may complement large cap and small cap holdings in a portfolio by offering diversification.
- Visibility and maturing: As mid cap companies grow, they may transition into more stable large cap companies, offering a path of maturation.
- Balanced profile: Striking a balance between growth and volatility, mid cap companies present moderate to high risk with substantial return potential, especially over a long horizon. This aligns with the concept that mid cap stock benefits aim to strike a balance between relative stability compared to small caps and higher growth potential compared to large caps.
Risks related to mid cap investments
While mid cap stocks may be relatively stable compared to small caps, they still carry risks.
- Volatility: Mid cap stocks display higher fluctuations than their large cap counterparts, meaning portfolio values may swing significantly depending on market sentiment.
- Liquidity concerns: During market stress, mutual funds might take longer to liquidate mid cap holdings, which may delay redemptions. SEBI mandates disclosures around such scenarios, emphasising transparency.
- Categorisation shifts: As companies grow or shrink, they may move between market cap categories (small, mid, large), which may prompt rebalancing and affect an investor’s strategy.
- Regulatory guidance: SEBI and AMFI have advised caution, asking fund houses to publish risk metrics, stress tests, and even limit lumpsum investments in mid and small cap schemes.
Comparing mid cap with large cap and small cap
Large cap stocks are typically more established and enjoy lower volatility and more stability compared to lower caps. On the other hand, mid-cap stocks occupy the middle ground––they carry relatively higher volatility, with potential opportunities for scale-up and growth compared to large caps. However, mid caps generally provide greater predictability compared to the highly volatile small cap segment.
In contrast, small-cap companies present the highest risk exposure but also potentially higher returns due to their early-stage or niche growth trajectories.
Steps to invest in mid cap companies
Here’s how Indian investors might approach mid-cap investments.
- Equity mutual funds labelled as mid cap fund under the equity category are usually available through regular plans offered via distributors. SEBI guidelines require these funds to hold a substantial portion (at least 65%) in mid-cap stocks and the rest may include cash or large caps for some liquidity and stability.
- Alternatively, investors may also consider index funds that track a specific index, such as Nifty midcap 150 or Nifty midcap 50.
- Also, large and mid cap fund schemes that invest across both categories may be suitable if you want balanced exposure across both categories.
For investing through SIPs (Systematic Investment Plans), an SIP calculator online may help you estimate how much you need to invest per month to meet certain goals. However, always remember that returns are not guaranteed and past performance may or may not be replicated in the future.
*Past performance may or may not be sustained in future
Could mid cap fit your portfolio?
You may find mid caps suitable if you’re aiming for the potential benefit of higher growth than what large caps typically deliver, while being comfortable with high volatility, especially in the short to mid-term.
Investing in a combination of large cap, mid cap and small cap funds could introduce multi-segment diversification, which could provide potentially better risk-adjusted returns based on exposure to multiple stages of growth. Slower-moving large caps could anchor portfolios, while mid caps may offer growth that’s neither overly speculative nor too slow.
Also Read: Multi Cap vs Mid Cap Mutual Funds: Which one to Choose?
Conclusion
Mid cap firms in India may provide a balance of growth potential, over a long horizon, if you are comfortable with high volatility over the short to mid-term. According to SEBI and AMFI classification, mid caps are companies ranked approximately 101st to 250th by total market capitalisation. Although mid caps may offer the potential for wealth creation over an extended horizon, they also carry more risk, price volatility and liquidity constraints. An investment strategy that combines mid cap funds with large cap or diversified equity mutual funds may be suitable for investors seeking the growth potential of mid caps while balancing the associated risks. The right allocation will depend on your investment horizon and comfort with volatility.
FAQs
What are mid cap companies in the stock market?
Mid-cap companies in India are those ranked approximately 101 to 250 by market capitalisation. AMFI, working as per SEBI guidelines, updates this list every six months.
Why may investors consider mid-cap stocks?
Mid-cap stocks may offer potentially higher returns than large caps, but with lower volatility than small caps, over a long investment horizon.
How does mid cap differ from small and large cap stocks?
Large-cap companies rank 1 to 100 and may offer stability with slower growth trajectory while mid-cap companies rank 101 to 250 and offer higher growth potential with higher volatility than large caps. Small caps rank beyond 250, offering high growth potential but also high risk.
Are mid cap companies riskier than large caps?
Yes, mid-cap companies typically exhibit more price movements compared to large caps, though they are usually less volatile than small caps.
What is a suitable way to invest in mid-cap companies?
Investors may participate through equity mutual funds, such as SEBI-defined mid cap funds or large and mid cap funds, by setting up an SIP. This offers a disciplined approach that remains consistent with SEBI’s scheme categorisation and regulatory framework.
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