Importance of having Mid Cap Funds in your portfolio

Midcap funds have always been popular with retail investors. Its popularity has only grown further in recent years with midcap funds overtaking large cap funds to become the category with second highest assets under management (AUM) among diversified equity funds. The reason midcap funds are popular with investors, is their wealth creation potential. The chart below shows the growth of Rs 1 lakh investment in Nifty Midcap 150 TRI versus the Nifty 50 TRI – your investment would have multiplied 19X in the midcaps (versus 12X in Nifty 50).

Source: National Stock Exchange, Advisorkhoj Research, Period: 1^st October 2005 to 30^th September 2025

Midcaps outperformed large caps and broad market over longer investment tenures

The chart below shows the 5 year rolling returns of Nifty Midcap 150 TRI versus the Nifty 50 TRI and the broader market index, Nifty 500 TRI over the last 20 years. You can see that Nifty Midcap 150 TRI outperformed the other two indices most of the time.

Source: National Stock Exchange, Advisorkhoj Research, Period: 1^st October 2005 to 30^th September 2025

Let us now see how Nifty Midcap 150 TRI performed versus the Nifty 50 TRI and the broader market index, Nifty 500 TRI over 10 year investment tenure. You can see that Nifty Midcap 150 TRI consistently outperformed the other two indices.

Source: National Stock Exchange, Advisorkhoj Research, Period: 1^st October 2005 to 30^th September 2025

The below shows the returns distribution of Nifty Midcap 150 TRI versus Nifty 50 TRI for different investment tenures. You can see that over 7 years plus investment tenures, Midcap always gave positive returns. At the same the percentage instances of 12%+ CAGR returns is significantly higher for Midcap across investment tenures. Further observe that the percentage instances of 15%+ CAGR is far higher for midcaps (marked in red), displaying the superior wealth creation potential.

Source: National Stock Exchange, Advisorkhoj Research, Period: 1^st October 2005 to 30^th September 2025. 1Nifty 50 TRI, 2Nifty Midcap 150 TRI

Suitable for SIPs

Systematic investment plans (SIPs) are popular investment avenues for retail investors, especially for investing in midcap funds. Midcap funds are best suited for long investment tenures (see table above). Through SIP you can keep investing relatively small amounts and remain invested over long investment tenures. The relatively high volatility of these funds also make them suitable for SIPs. SIPs take advantage of volatility through Rupee Cost Averaging. The chart below shows the growth of Rs 10,000 SIP in Nifty Midcap 150 TRI versus Nifty 50 TRI over the last 20 years. With a cumulative investment of just Rs 24 lakhs, you could have accumulated a corpus of ~ Rs 1.8 crores in Nifty Midcap 150 TRI (versus ~Rs 1 crore in Nifty 50 TRI)

Source: National Stock Exchange, Advisorkhoj Research, Period: 1^stOctober 2005 to 30^th September 2025

The below shows the XIRR distribution of Nifty Midcap 150 TRI for different investment tenures. Over 10 years plus SIP tenures you can 12+ XIRR returns in 96% of instances and 15%+ XIRR returns in ~70% of instances (marked in red). The table below shows the importance of having long SIP tenures for your midcap funds.

Source: National Stock Exchange, Advisorkhoj Research, Period: 1^stOctober 2005 to 30^th September 2025

Broader exposure

The universe of midcap stocks (150 stocks) is broader than large caps. Midcaps provide broader sector exposure than large cap stocks. There are several sectors dominated by midcap stocks, where large cap stocks have no presence. Midcaps can add richer diversification to your equity portfolio.

Source: National Stock Exchange, Advisorkhoj Research, as on 30^th September 2025.

Lower downside risks than small caps

Nifty Midcap 150 TRI experienced smaller drawdowns compared to small caps, represented Nifty Small Cap 250 TRI (see the chart below).

Source: National Stock Exchange, Advisorkhoj Research, Period: 1^st May 2015 to 30^th September 2025.

Fund selection is important

Performance may vary for funds within the same category (see the chart below). You can see that there can considerable median deviation in performance of midcap funds. You should understand that over long investment tenures, even a few percentage point difference in returns can result in substantial difference in wealth creation due to compounding. You should always invest in funds that have long track record of consistent outperformance relative to the benchmark index. You should also look at the performance of other funds managed by the fund manager and the track record of the asset management company (AMC). You should consult with your financial advisor or mutual fund distributor if you need help in selecting funds for your investment portfolio.

Source: National Stock Exchange, Advisorkhoj Research, as on 17^th October 2025.

Who should invest in midcap funds?

• Investors seeking capital appreciation or wealth creation over long investment tenures


• Investors who are comfortable with high short term volatility


• Investors who have minimum 5 year investment tenures


• Investors with very high risk appetites


• SIP can be highly effective for midcap funds


• Lump sum investments on dips can also be suitable provided investors have long investment tenures

Investors should consult with their financial advisors of mutual fund distributors how they can add midcap funds (if suitable) to their investment portfolios.