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Should I add a mid-cap fund to my portfolio?

Dhirendra Kumar shares his thoughts on choosing a mid-cap fund for your portfolio


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About two years ago, I started investing in three large-cap-oriented, tax-saving funds. Now, with more surplus to invest, should I go for a mid-cap fund or add another large-cap fund to my portfolio?
- Somit

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It actually depends on various other parameters. When it comes to investing in mutual funds, one should, ideally, not consider taking large-, mid- or small-cap exposure individually. You should give your money to a fund manager who has the flexibility to invest your money anywhere. Usually, two to three kinds of fund categories provide fund managers with this flexibility. And these categories are large- and mid-cap funds, multi-cap funds and value funds. All of these categories are more independent in terms of their investment universe, as they can explore opportunities across the market.

So, first select among these funds and once you gain two to three years of experience, you may go for a 10-15 per cent allocation towards mid- and small-cap funds. By that time, you will have a fair idea that these funds are rewarding as well as volatile.

In general, one should start investing in them when these funds are underperforming. Nevertheless, most investors put their money in these funds when they have already performed well. Chasing past performance turns out to be very disappointing. As was evident in 2017 when investors started investing in small-cap funds in view of their high returns. But they are now disappointed about their investments. So, start investing in mid- and small-cap funds when they are struggling.

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