Updated on March 17, 2023
Mid cap means companies which are in the ‘middle’ in terms of their growth and market cap, as compared with ‘Large Caps’ and ‘Small Caps’. Mid caps are stocks which belong to companies between INR 5,000-20,000 crores of market cap. As per their ranking in the Indexes, these are companies which are ranked between 101 and 250.
Features of Mid Cap
Features of Mid Cap are:
1. Mid caps come with a strong growth potential, have already shown promise and are expected to perform on similar lines.
2. The risk in mid caps, though high, is less when compared to totally unknown small caps.
3. Mid caps have a certain level of confidence amongst investors and they offer better liquidity than small caps.
4. These stocks offer better diversity to client portfolios, offering comfort as well as solid growth prospects.
Reasons for investing in Mid Caps
Reasons for investing in Mid Caps are:
a) Mid caps can be a better way of generating higher than normal returns.
b) These are companies which have moved beyond their initial phase, are entering a higher growth trajectory and can thus generate high returns for investors who can wait longer.
c) There is better availability of information and transparency in mid caps as against the small cap stocks/companies.
d) Mid caps are not ‘popular yet’, which means they have a longer run way than large caps and thus can have a considerably good return time window.
Limitations of Mid Caps
Limitations of Mid Caps are:
1. MId caps may suffer from unavailability of resources to scale up further which may hinder their future growth.
2. A mid cap stock can outperform in a market frenzy without the company actually doing well, which can trap the investors.