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Summary: A year ago, mid-cap funds were the market’s golden child. Today, 40 per cent of them are in the red, and almost all the rest barely scraped single-digit gains. Should you bail? Not so fast. The real story of mid-caps isn’t written in one year, and the data proves it…
Mid-cap funds have long enjoyed a place in investors’ hearts (and portfolios) because they aim to strike a balance between the stability of large caps and the explosive growth potential of small caps.
History backs this up. Over long periods, mid caps have rewarded patient investors handsomely. Over the past decade, the average mid-cap fund has delivered 15.06 per cent annualised returns, handily beating the 11.78 per cent from large-cap funds, thanks to the ability of mid-sized companies to grow faster as they scale up.
While this performance has drawn many investors in, as with every asset class that offers higher growth potential, mid-caps also bring along periods of sharp volatility. And the past year has been a reminder of that.
How poorly have mid-cap funds done in the last 12 months?
Over the last one year, mid-cap investors haven’t had much to cheer about.
We looked at 30 actively managed mid-cap funds that have been in existence for at least a year. The results:
- Only 18 delivered positive returns over the last 12 months.
- Of those, just one fund — Invesco India Mid Cap Fund — managed to deliver double-digit returns.
- The remaining 17 posted single-digit gains.
For a category that’s supposed to be the growth engine in your equity portfolio, this performance feels underwhelming, and even alarming, to a new investor.
So, should you stay invested in a mid-cap fund?
If you invested in mid-cap funds expecting smooth upward growth every year, this phase can shake your confidence. But here’s the thing: mid-cap investing is not designed for short holding periods.
The category is inherently volatile. These funds invest in companies that are more established than small caps but still face higher earnings variability and price swings than large caps. That’s why, we always suggest that one needs to give mid-caps at least 7-10 years to truly realise their potential.
The odds of a bad year in mid caps
To put the recent performance in perspective, let’s examine the Nifty Midcap 150 TRI index, a widely used benchmark for mid-cap performance.
In the past five years, if you picked any random one-year period, there was about a 1-in-10 chance your mid-cap investment would have lost money. And if we also count the instances when returns were in single digits (between 0 and 9 per cent), that jumps to more than 25 per cent of the time. That means there’s a one-in-four chance your mid-cap fund would be a “meh” or an “ouch” if you held it for just a year.
Essentially, the last 12 months, where 29 of the 30 funds either delivered negative or single-digit returns, are not an anomaly. They are part of the normal ebb and flow of mid-cap investing.
But the long-term picture is different
Now, instead of looking at just one year at a time, let’s zoom out to rolling five-year periods over the past five years. This means we check every possible five-year stretch within that time — for example, Jan 2018 to Jan 2023, Feb 2018 to Feb 2023, and so on — to see how mid-caps performed over those longer horizons. Here’s what the picture looks like:
- The Nifty Midcap 150 TRI has never delivered a negative return over any five-year holding period.
- And in only 10 per cent of cases have five-year returns been in single digits.
In other words, while one-year performance can swing wildly, five-year periods have almost always rewarded mid-cap investors, and often handsomely.
The takeaway
Mid-cap funds are not broken. The last year is simply one of those stretches where short-term performance doesn’t match the long-term potential.
However, the rules of mid-cap investing remain the same:
- Think long term, at least 7-10 years.
- Prepare for volatility, and avoid checking your portfolio every month.
- Don’t chase past one-year winners. Choose funds with consistent performance across multiple market cycles.
- Stay diversified. Mid caps should be a part, not the whole, of your equity allocation.
Do you want to start an SIP in a mid-cap fund?
Explore Value Research Fund Advisor. Here, we help you:
- Pick the right mid-cap funds for your goals and risk appetite.
- Avoid funds with poor long-term consistency.
- Stay the course through volatile patches with clear, data-backed guidance.
Also read: 50% of small-cap funds have lost money in last 12 months
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