Performance Of Equity Schemes Across Market Cycles

Mid-cap equity funds offer investors the potential to generate significant wealth. However, the risk is substantially magnified.

In the bull periods, mid-cap stocks tend to outperform their large-cap peers by a significant margin. Unfortunately, in the bear periods, mid-cap funds can lead to deep losses as well. This is evident in the table below -

                Data as on December 6, 2016 Returns over 1-Yr are compounded annualised

If you have appetite for high risk, you may invest a higher proportion of your equity portfolio in small-and-midcap funds.

We suggest don't base your decision on myopic speculation, instead focus on the long-term. Stocks, more often than not, move up over the long term. Hence, such dips in the market may be a good time to invest a small portion of idle cash for the long term (i.e. five years +).

If you are investing for long-term goals, mid-cap funds can form part of your portfolio. The current fall in the market, makes it a good time to invest. When the market moves up, your investment would do well.

But gauge your risk appetite. The present market crash is an easy way to determine your risk appetite. If the sharp decline in mid-cap funds has left you worried, then your risk appetite is perhaps not as high as you had previously imagined. This is a signal to tone down your mid-cap investments.

If you are a 'very aggressive' risk-taker, consider investing in small-and mid-cap schemes (or even micro-cap schemes). Your overall allocation to small-and-midcap funds can go up to 35-40% of your equity portfolio, while large- and multi-cap schemes can form the remaining part of the equity portfolio.

As an 'aggressive' investor, you may invest upto 25-30% of your equity portfolio in mid-cap funds. Avoid small and microcap schemes. The remaining portion of your equity portfolio can be invested in large-cap and multi-cap schemes.

Likewise, if you're an investor with 'moderate' risk appetite, best is to avoid investing in small-and-mid cap funds altogether.

Note: Above information is for educational purpose only , consult your financial planner or investment adviser  for a suitable allocation to small-and-midcap funds.