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How to use Mid-cap & small-cap mutual funds and get good returns?

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Mid-cap fund and small-cap fund holdings should not form part of the core portfolio

THERE is always a question in the minds of investors about the role of mid and small-cap funds in their portfolio. For understanding this, it is important to look at the behaviour of these funds, as it will enable you to take a position on how they should actually be treated in the portfolio and the role that they can play in the future. It will also help in determining how these funds need to be included in the portfolio.

Return expectation:

 Mid and small-cap funds are considered as an attractive investment option due to the returns that they can generate. Largecap funds might seem to have a limited potential on the upside because of the nature of stocks in the portfolio and, hence, the attraction towards the mid and small-cap funds rises. There are chances that some stocks in the portfolio could turn out to be multi baggers, which can increase the overall returns for the fund. This is the hope that attracts investors towards these funds, but this is just the starting point for the entire investment consideration.

Since the risk element is also high, this aspect also needs some attention from investors before they make the investment.

Very volatile:

There are times when the mid and small-cap space bears the brunt of market movement on the downside as they go out of favour with the investor community.

This is the time when individuals witness that there is a sharp fall in the value of these stocks, which can be for quite high in a short period of time. Thus, a 30 per cent or a 40 per cent fall in the value of several stocks in a few weeks is something that is not very uncommon, and can lead to a situation, wherein, the net asset value of the funds also swing in dramatic fashion. Thus, sharp rises and falls could lead to the entire outlook for the investment changing quite rapidly and, so, this is something that investors have to be ready to face. In case, there is some action required, then waiting might prove to be too late. So, it is better to be quick to respond to the situation.

Portfolio part:

It is important that the mid and small-cap holdings covers a small part of the portfolio with a specific role assigned to it. There has to be a percentage in the overall portfolio that should be allotted for such funds to ensure that there is a specific way in which the investment is constructed. Also, the mid and small-cap holdings should not form a part of the core portfolio of investors so that there is not much reliance placed on it to generate steady returns.

There will be times when nothing is happening to this part of the portfolio or a situation where the returns could jump significantly in just a short period of time.


This can lead to a position where if the investment is meant for capital appreciation over a period of time, then the goal can be achieved due to the sharp appreciation in a bull run. On the other hand, expecting too much in the short-term can lead to disappointment and wrong decisions as far as selling of the fund is concerned.


This is something that individuals need to be alert about because it will impact their final returns

Happy Investing!!

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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

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These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax PlanInvest Online
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  3. DSP BlackRock Tax Saver FundInvest Online
  4. Reliance Tax Saver (ELSS) FundInvest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) FundInvest Online
  7. SBI Magnum Tax Gain Scheme 1993Invest Online
  8. Sundaram Tax SaverInvest Online
  9. Edelweiss ELSS Invest Online

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Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFundsInvest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

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