Midcap fund category saw highest-ever net inflow in August at Rs 5,331 crore

Atul Bhole, Fund Manager at Kotak Mahindra AMC is of the view that midcaps as currently occupying a 'sweet spot', offering stronger growth than largecaps while retaining more stability than smallcaps. While midcaps may appear optically more expensive than largecaps, valuations for similar businesses and growth profiles are “not very different across market-capitalisation buckets,” said Atul Bhole, noting that sectors like EMS, hospitals, hotels, and discretionary consumption are better represented in midcaps, thereby pushing the category's average multiple higher.

Over the past six months, the category gained nearly 21%, while nine-month returns were slightly negative at –1.24%. One-year returns average 21.39%, three-year returns average 27.28%, and five-year returns average 20.51%, which experts believe highlight the segment’s strong long-term wealth-creation potential.

Shweta Rajani, Head – Mutual Fund at Anand Rathi Wealth said that earnings have supported the inflows, with the profit pool of midcap companies expanding at a robust 16-18% in the last financial year, nearly double that of the largecap peers' 8-9% growth. “This momentum has continued into the latest quarterly results, where midcaps once again delivered roughly 16% earnings growth while large companies posted single-digit gains,” she said.

Incidentally, the market capitalisation in the Rs 30,000-90,000 crore range now overlaps with the lower end of the largecap spectrum, giving many midcaps the scale and resilience of bigger companies while preserving faster growth potential. Valuations, however, remain mixed - stretched in a few hot pockets but reasonable in others, creating opportunities for selective investors.

Over the past six months, midcap indices have outpaced the 11–12% returns of largecaps. On a one-year basis, both segments are slightly negative (around –1 to –1.5%), yet midcaps have avoided the sharper drawdowns typically associated with smaller companies. Extending to two or three years, midcaps have generated an annualised performance edge of roughly 3-4% over large caps, a pattern that continues to draw incremental flows.

Portfolio construction also sets the category apart, said Anand Rathi Wealth's Rajani, while adding that midcap funds typically hold a broader spread of stocks, with individual positions rarely exceeding 4-5% of the portfolio compared with the 8-9% weights common in largecap funds. This diversification has reduced company-specific risk in the midcap space while allowing exposure to a wider range of growth opportunities, she said.

In pharmaceuticals, for example, largecap portfolios often focus on manufacturing and hospitals, while midcap funds can capture growth in diagnostics, specialty healthcare services, and other high-potential niches. Historically, the beta of the midcap index versus large caps over a 2-3 year holding period has averaged slightly below one (around 0.90 to 0.95) indicating marginally lower relative risk even as midcaps have outperformed large caps by about 2-3% annually.

For Sachin Jain, Managing Partner at Scripbox, the sustained investor interest reflects the segment’s long-term performance. The New Fund Offers (NFOs) too have channelled significant lumpsum investments during market corrections, he added, even as Systematic Investment Plans (SIPs) continue to provide steady, rupee-cost averaging benefits. “Both modes are important, but SIPs have remained remarkably robust despite short-term volatility,” Jain said.

According to WhiteOak Capital's latest report, SIPs in the Nifty Midcap 150 TRI have delivered an average annualised return of 17.4% over a 10-year rolling period ending August 2025, with positive returns in every instance and returns above 12% nearly 95% of the time, making mid-caps investments through SIPs a good bet.

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