As per SEBI’s circular, the 101st to 250th publicly traded companies by market capitalization are classified as midcap companies. These companies have smaller market share, turnover and balance sheets compared to large cap companies, but larger market share, turnover and balance sheets compared to small cap companies. Midcap stocks tend to be less researched than large cap stocks, but are more extensively covered than small cap companies. As such the risk profiles of midcap stocks are in between large and small cap stocks – they are seen as more risky than large cap stocks but less risky than small cap stocks.
Since the midcap segment of the stock market is not as large (in terms of volumes) and liquid as the large cap segment, this segment is not as efficient as large cap segment. As a result, there is considerable scope of price discovery in this segment compared to large cap; fund managers can identify under-valued midcap stocks and deliver high returns to investors over long investment tenors. On the other hand, midcap stocks are much more volatile than large cap stocks and investors should be prepared for high volatility.
As per SEBI’s mutual fund classification, equity mutual fund schemes which invest at least 65% of the assets under their management (AUM) in midcap stocks are categorized as midcap funds. The risk profiles of these schemes are higher than large cap funds but lower than small cap funds, even though the riskometer profile is usually moderately high.
Suggested reading: Liquidity an important parameter for selection of midcap mutual funds