Mid Cap Mutual Funds: Returns, Risk, Tax and Every Fund Compared

What is a mid cap fund?

A mid cap fund is an equity mutual fund that must keep at least 65% of its assets in shares and equity-related instruments of mid cap companies. SEBI sets that minimum in its rules on scheme categories, revised in February 2026, which kept the mid cap definition unchanged.

SEBI measures company size by full market value, using a list AMFI publishes every six months. The 100 largest listed companies are large caps, the next 150 (101st to 250th) are mid caps, and every company from the 251st onwards is a small cap. When the list changes, funds have a month to adjust their holdings.

The other 35% or less can go into large and small companies, cash and money market instruments, and, under the 2026 rules, gold and silver instruments and InvITs. The 2026 rules also require a fund’s name to match its category, so every fund in the table has “Mid Cap” or “Midcap” in its name.

Between large and small: what mid caps bring

Mid cap companies are past the early stage but not yet among the largest. Some will grow into large caps; others will stall and slip down the list. Their shares usually swing more than large caps and less than small caps, and are usually easier to trade than small caps, though far less traded than the largest companies.

The bands move. A mid cap that grows into the top 100 counts as a large cap from the next list, and a small cap that grows can move up into the mid cap band. After each list, a fund that has fallen below 65% in mid caps has a month to top it back up, which can mean trimming companies that have grown into large caps or buying more mid caps.

Most mid cap funds measure themselves against the Nifty Midcap 150 TRI or the BSE 150 MidCap TRI, which track the companies ranked roughly 101st to 250th by size, with dividends reinvested. Each fund’s factsheet compares its return with its benchmark.

Liquidity and fund size

A fund holding tens of thousands of crores has to take larger stakes in each company, or spread across more of them. Since March 2024, at SEBI’s direction, fund houses have published regular stress tests for their mid cap and small cap funds. The main figure is how many days the fund would need to sell 25% and 50% of its portfolio, selling every holding in proportion. The results, with other risk measures, are on each fund house’s website.

Our study of small cap fund size and returns looked at whether bigger funds fall behind. Mid cap shares trade more freely than small caps, but the largest mid cap funds are now big enough for the same question to be worth asking.

How mid cap funds are taxed

Under the Income-tax Act, 2025, which applies from 1 April 2026, a fund counts as equity-oriented if, on average over the year, at least 65% of its money is in listed shares of Indian companies (section 198(8)). Mid cap funds hold mostly listed Indian shares and are treated as equity-oriented funds.

• Held 12 months or less: gains are short-term and taxed at 20%.
• Held longer: gains are long-term. The first ₹1.25 lakh a year of long-term gains on equity shares and equity-oriented funds together is tax-free; the rest is taxed at 12.5%.
• Surcharge, where it applies, and 4% cess come on top. STT of 0.001% is charged when you redeem.

For resident investors there is no TDS on capital gains when you redeem; dividend (IDCW) payouts above ₹10,000 in a year have 10% tax deducted. Tax rules change; check your own case with a tax adviser.

Mid cap, large & mid cap, small cap or flexi cap?

• Mid cap fund: at least 65% in mid cap companies, the 101st to 250th.
• Large & mid cap fund: at least 35% each in large and mid caps, so roughly a third or more is in mid caps.
• Small cap fund: at least 65% in small caps, the 251st company onwards. See small cap funds compared.
• Multi cap fund: at least 75% in equity, with at least 25% each in large, mid and small caps.
• Flexi cap fund: at least 65% in equity, with no limit on company size. See flexi cap funds compared.
• Mid cap index fund: a passive fund that copies a mid cap index such as the Nifty Midcap 150, usually at a lower cost. Index funds are a separate category and are not in the table above.

Where a mid cap fund fits in a portfolio

A mid cap fund is rarely held on its own. More often it sits next to a large cap, flexi cap or index fund, adding companies that are smaller than the largest 100. Before adding one, check what you already own: flexi cap, multi cap and large & mid cap funds hold mid caps too, so a separate mid cap fund may add less than it seems. A portfolio analysis shows how your money is spread across categories.

A SIP buys units every month at that day’s NAV, which spreads the risk of investing everything just before a fall; it does not prevent losses. To see what a monthly amount could grow to, try the SIP calculator.

Risks to know

• Market falls: mid cap funds usually fall further than large cap funds in a decline and can stay down for years. Money you may need within a few years does not belong here.
• Liquidity: in a sell-off, some mid cap shares can be hard to sell without moving their price; the stress test shows how exposed each fund is.
• Fund size and inflows: a very large fund has to buy bigger stakes, hold more companies or drift towards larger ones.
• Fund manager: stock selection drives most of the difference between funds, so returns depend heavily on the people running the fund.

How to choose a mid cap fund

There is no single best mid cap fund: each one holds a different mix of companies, and the leader in one year is often not the leader the next. Compare them on these points instead:

• Time horizon: mid cap funds suit money you can leave invested for several years, through at least one sharp fall.
• How much is really in mid caps: the factsheet shows the split between large, mid and small companies.
• Size and liquidity: check the fund’s latest stress test.
• Returns over three and five years: compare them with the Nifty Midcap 150 TRI or the fund’s own benchmark, and look at how far the fund fell in bad years, not just the average.
• Direct plan: the same portfolio for a lower expense ratio. See direct vs regular plans.
• Expense ratio: compare the direct plans. How the expense ratio works.
• Exit load: many mid cap funds charge one if you redeem within the first year; the scheme document gives the terms.