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Should I Shift From Large Cap To Mid Cap Investments?

Adhil Shetty


Q. My equity investment portfolio is focused on large-cap mutual funds. There has been volatility on the stock markets but my large-cap funds have performed well. However, I now seek higher returns. Is this a good time to invest in mid-cap funds? Rakesh Kapoor

A. Long-term mutual fund investors should focus on high quality funds focused on large-cap bluechips. This would provide them stable wealth growth over the years. Large-cap funds are more stable than mid-cap and small-cap funds. Since the risks are higher with mid-cap and small-cap funds, it may be possible for them to provide higher returns.

However, the downside is volatility and higher possibility of losses. Given the risks, you should invest in them in a controlled manner. Assess your risk appetite and give yourself a long investment tenure to optimize your returns from mid-cap funds.

Is there a perfect ratio for mid-cap and small-cap funds in your portfolio? There isn’t. It comes down to your risk appetite. But if your equity risk appetite is moderate to low, invest no more than 10-20% of your portfolio in these options while large-cap funds will make up 80-90% of your portfolio.

You could also consider investing in large & mid-cap funds that blend both categories and could thus provide greater stability.

Have a question on personal finance? Ping me on Twitter at @adhilshetty with the hashtag #AskAdhil. The writer is CEO, BankBazaar.com, an online marketplace for loans and credit cards.