Midcap Fund: Is Mirae Asset Worth The Investment?

Mirae Asset Midcap Fund is an open-ended equity scheme that predominantly invests in mid-cap stocks. The fund aims to provide long-term capital appreciation by investing in Indian equity and equity-related securities of mid-cap companies. It is suitable for investors who are looking to invest money for at least 3-4 years and are seeking high returns while also being prepared for potential moderate losses. The fund has a moderately high-risk profile and is recommended for investors with a moderately high-risk appetite. The fund has a minimum SIP installment amount of Rs. 99 and a minimum additional application amount of Rs. 1,000. The fund has a Regular Plan and a Direct Plan, with a growth option and IDCW (Payout/Reinvestment).

The benefits of investing in large companies

Investing in large companies, or large-cap stocks, offers several benefits to investors. Here are some advantages to consider:

Stability and Lower Risk

Large-cap companies are well-established, reducing the likelihood of business or economic circumstances that could render them insolvent. They tend to have stable sizes, tenure, and steady dividend payouts, making them a safer investment option.

Steady Dividend Payments

While large-cap companies' stock prices may not exhibit high growth rates due to their established market presence, they often compensate shareholders through steady dividend payouts. These dividend payments can lead to impressive comprehensive returns for investors over time.

Better Research and Valuation

Large-cap companies have longer business tenures, making it easier for investors and creditors to obtain research on their operations and profitability levels. Additionally, publicly traded large-cap companies are required to provide accurate and periodic financial statements, enabling investors to make more informed decisions.

Greater Analyst Coverage

Due to their size and prominence, large-cap stocks generally attract greater analyst coverage. This means there is more information available to investors, reducing uncertainty and helping them make more confident investment choices.

Lower Volatility

Large-cap stocks typically exhibit lower volatility compared to smaller companies. Their larger size and established reputation contribute to reduced price fluctuations, providing a more stable investment opportunity.

Diversification

Investing in a mix of large-cap and small-cap stocks can provide diversification benefits to an investment portfolio. While large companies offer stability, smaller companies have higher growth potential, and including both in a portfolio can balance risk and reward.

Now, regarding your interest in investing in the Mirae Asset Midcap Fund, it is important to note that this fund focuses on investing in mid-cap stocks, which are ranked between 100 and 250 by size (market capitalization). While these stocks may have higher growth potential than large-cap stocks, they also carry a greater degree of risk. The fund aims to invest predominantly (>65%) in mid-cap equity and related instruments. The fund manager may also participate in other Indian equities to optimize the portfolio.

Before making any investment decisions, it is essential to carefully consider your financial goals, risk tolerance, and time horizon. Consult with a financial advisor to determine if investing in the Mirae Asset Midcap Fund aligns with your specific circumstances and investment strategy.

The investment tenure of large and midcap funds

When considering investing in mutual funds, it is important to understand the differences between large-cap, mid-cap, and small-cap funds. These funds are categorized based on the market capitalization of the companies they invest in, with large-cap funds focusing on the top 100 companies, mid-cap funds targeting companies ranked 101 to 250, and small-cap funds investing in companies ranked 251st and below.

Large-cap funds, such as the Mirae Asset Large Cap Fund, are known for their stability and low risk compared to mid-cap and small-cap funds. They invest in well-established companies with strong track records, high market values, and strong market presence. These funds are suitable for conservative investors seeking long-term returns and lower risk.

Mid-cap funds, on the other hand, offer a balance between growth and stability. They tend to have a higher risk profile than large-cap funds but provide greater growth potential than large-cap stocks, with less volatility and risk than small-cap stocks. Mid-cap funds are suitable for investors who are moderately risk-tolerant and have a long-term investment horizon.

In terms of investment tenure, large-cap funds are typically recommended for investors with a long-term investment horizon. These funds may take a gradual approach to growth but can deliver steady returns over a span of at least 5-7 years. On the other hand, mid-cap funds are suitable for investors who are willing to invest their money for at least 3-4 years and are seeking high returns. While mid-cap funds may offer the potential for higher returns, they also come with the possibility of moderate losses.

When deciding whether to invest in large-cap or mid-cap funds, it is important to consider your investment goals, risk tolerance, and time horizon. Large-cap funds are ideal for conservative investors seeking long-term stability and lower risk, while mid-cap funds offer a balance between growth and stability for those with a moderate risk appetite.

The taxation of equity mutual funds

If you sell your equity investment within a year, it is accounted for as a short-term capital gain and is taxed at a flat rate of 15% (plus a 4% cess) irrespective of your income tax bracket.

Long-term capital gains are made on equity fund units sold after being held for over one year. These gains are tax-free up to 1 lakh rupees in a financial year. Any long-term capital gains exceeding this limit attract a tax of 10% (plus a 4% cess) without indexation benefit.

The Union Budget of 2020 changed the rules on tax on dividends from equity mutual funds in India. You no longer pay a Dividend Distribution Tax (DDT) on equity mutual funds, and the dividends are now taxable in the hands of the investors. This means that dividend income will be treated like normal income and taxed according to your income tax slab rate. If you earn an equity fund dividend of more than 5000 rupees, the amount will be subject to 10% TDS at source if your PAN has been linked with Aadhar. If your PAN is not linked, the TDS will be 20%.

Additionally, Systematic Investment Plans (SIPs) are a method of investing in mutual funds where investors can choose the frequency of their investments. When you redeem your entire SIP investment after 13 months, the units purchased first are held for the long term (over one year), and you realise long-term capital gains on these units. If these gains are less than 1 lakh rupees, you don’t have to pay any tax. However, you make short-term capital gains on the units purchased from the second month onwards, which are taxed at a flat rate of 15% irrespective of your income tax slab. You will also have to pay the applicable cess and surcharge.

Finally, there is another tax called the Securities Transaction Tax (STT). An STT of 0.001% is levied by the government when you decide to buy or sell mutual fund units of an equity fund or a hybrid equity-oriented fund. There is no STT on the sale of debt fund units.

The investment strategy of Mirae Asset Large & Midcap Fund

The Mirae Asset Large & Midcap Fund is an open-ended equity scheme that predominantly invests in both large-cap and mid-cap stocks. The fund's investment strategy is driven by a bottom-up approach, with a focus on value investing in growth-oriented businesses. The fund aims to provide long-term capital appreciation by investing primarily in Indian equities and equity-related securities of large-cap and mid-cap companies.

The fund typically invests 35-65% in large-cap companies (top 100 by market capitalisation) and 35-65% in mid-cap companies (companies ranked 101st-250th by market capitalisation). This approach allows investors to participate in the growth of emerging companies that have the potential to become tomorrow's blue-chip companies. The fund managers follow Mirae Asset's equity investment philosophy, selecting businesses based on large market opportunities, sustainable competitive advantages, and return on investment.

The fund is suitable for investors who aim for capital appreciation, want exposure to both large and mid-cap stocks through a single portfolio, have long investment horizons (at least 3 years), and have a moderately high-risk appetite. The suggested investment tenure is 3-5 years, and the risk profile is 'Moderately High'.

The fund offers a Regular Plan and a Direct Plan, with a common portfolio and separate NAVs. Each plan has a Growth Option and a Dividend Option, with the latter offering Dividend Payout and Dividend Reinvestment sub-options. The minimum SIP instalment amount is Rs. 99, with investments made in multiples of Re. 1 thereafter.

The types of securities in which Mirae Asset Large & Midcap Fund can invest

The Mirae Asset Large & Midcap Fund is an open-ended equity scheme that invests in both large-cap and mid-cap stocks. The fund's objective is to generate income and capital appreciation by investing primarily in Indian equities and equity-related securities of large-cap and mid-cap companies.

The types of securities in which the Mirae Asset Large & Midcap Fund can invest include:

• Large-cap stocks: The fund invests 35-65% in the top 100 companies by market capitalization. These stocks are considered less risky and have lower price volatility compared to mid-cap or small-cap stocks.
• Mid-cap stocks: The fund invests 35-65% in companies ranked 101st to 250th by market capitalization. Mid-cap stocks may be riskier than large-cap stocks but have a higher potential for long-term returns.
• Small-cap stocks: The fund can also invest in small-cap stocks, which are ranked below 250th by market capitalization. These stocks are considered riskier but may offer even higher potential returns.
• Other securities: The fund manager has the discretion to deploy the balance of the scheme's assets across different market cap segments (including large-cap, mid-cap, and small-cap) and asset classes. However, any exposure to stocks other than large and mid-cap must comply with the restrictions mandated by SEBI and the Scheme Information Document.

Frequently asked questions