Are midcap funds worth the risk in choppy markets? Experts say stick to SIPs, diversifying a bit

Investing in midcap mutual funds can be a smart long-term move, but it requires a careful strategy—especially during periods of market volatility. Midcap companies typically sit between large, stable blue-chip firms and the fast-paced world of small-caps. While they offer higher growth potential than large-caps, they’re also more sensitive to market fluctuations, making volatility a key challenge for midcap investors.

The midcap mutual fund segment, recently subjected to considerable market volatility, continued to attract consistent inflows through systematic investment plans (SIPs). Despite a notable decline in the Nifty Midcap 150 index by 14.45% since September, experts advise maintaining SIPs to navigate the fluctuating market conditions.

SIPs in the midcap category

SIPs in the midcap category have demonstrated resilience as they offer a disciplined investment approach that mitigates the impact of market swings through rupee cost averaging. This strategy ensures that investors can continue to build their portfolios steadily, irrespective of market fluctuations.

Historical data analysis spanning two decades, from April 2005 to March 2025, underscores the importance of an extended investment horizon in midcap funds. Research indicates that SIP investments in the Nifty Midcap 150 Total Returns Index require a minimum tenure of eight years to achieve positive returns.

Over shorter investment periods, such as three to five years, there have been significant declines, with a maximum annualised loss of 8.2% for a five-year SIP. However, extending the investment to eight years showed a minimum return of 1.7%. This demonstrates the potential for long-term gains and capital preservation. 

Midcap funds and volatility

The market’s recent behaviour has challenged midcap funds, especially after a 7.5% decrease in SIP investments in the Nifty Midcap 150 during the downturn. In contrast, the Nifty 50 saw only a 1% reduction in similar investments. Despite these challenges, the midcap sector remains buoyed by robust SIP inflows and retail investor interest, highlighting its popularity amidst volatility. These funds, classified by AMFI as those ranked between 101 and 250 by market capitalisation, have seen persistent demand even during turbulent times. 

“When it comes to investing SIPs in any single category is not recommended as it can increase the concentration risk associated with the performance of any single category. While investing in SIPs for the long term, investors should follow the multi-tier diversification approach to the portfolio, starting with diversifying across the low-correlative assets like equity & debt and in equity diversifying across the categories and market caps like market cap-based funds, flexi/multi-cap, and strategy-based funds like focused, value, and contra. One should also consider diversifying the investments across the AMCs and following the market cap mix of 55:20:25 in large, mid, and small caps to ensure stability and growth in the portfolio. This broad diversification will help to get exposure across the sectors, categories, and market caps and help to generate greater alpha. Additionally, it will reduce the concentration risk associated with the performance of any single sector/market cap and help to ride across the market cycles smoothly,” said. Chethan Shenoy, Director & Head – Product & Research, Anand Rathi Wealth Limited 

Experts advocate for the continuation of SIPs and emphasise the retention of some liquidity to capitalise on potential market corrections. By maintaining liquidity, investors can benefit from market dips and invest strategically. Valuemetrics Technologies’ research further corroborates the potential benefits of long-term SIPs, indicating that investments maintained for periods ranging from eight to fifteen years consistently yielded positive returns. Thus, prolonged commitment to SIPs in the midcap segment can be a prudent strategy for achieving financial goals.

The midcap segment, while offering lower returns than small caps, presents reduced risks, making it a viable choice for cautious investors. The analysis revealed that while three-year SIPs in the midcap index achieved a maximum annualised return of 37.5%, they still performed below the small-cap index’s 42.1%.

Nevertheless, the midcap index’s less volatile nature and the structured approach of SIPs provide a balanced risk-reward scenario. As the market navigates through its current phase, investors are encouraged to focus on the long-term benefits and stability that SIPs in midcap funds can offer. 

Here are top 5 midcap funds with 3-year, 5-year returns

Based on the latest data available as of March 29, 2025, here are the top five midcap funds that have generated the best SIP returns, along with the projected maturity value for a monthly SIP of Rs 10,000.

1. Quant Mid Cap Fund – Direct Plan
Quant Mid Cap Fund tops the list with a 3-year SIP return of 22.01% and a 5-year SIP return of 23.56%. A monthly SIP of Rs 10,000 in this fund would have grown to Rs 4.47 lakh in 3 years and ₹9.12 lakh in 5 years.

2. Mahindra Manulife Mid Cap Fund – Direct Plan
This fund registered a 3-year SIP return of 20.67% and a 5-year return of 19.73%. SIP investors putting in Rs 10,000 per month would have accumulated Rs 4.32 lakh over 3 years and Rs 8.10 lakh over 5 years.

3. Edelweiss Mid Cap Fund – Direct Plan
With a 3-year SIP return of 20.55% and a 5-year return of 18.17%, Edelweiss Mid Cap Fund stands strong. A Rs 10,000 monthly SIP here would be worth Rs 4.31 lakh in 3 years and Rs 7.65 lakh in 5 years.

4. Nippon India Growth Fund – Direct Plan
This fund delivered a 3-year SIP return of 19.48% and 5-year return of 18.97%. A Rs 10,000 monthly SIP would have grown to Rs 4.22 lakh in 3 years and Rs 7.94 lakh in 5 years.

5. Motilal Oswal Midcap Fund – Direct Plan

With a 3-year SIP return of 19.46% and a 5-year SIP return of 19.60%, this fund has also shown consistent performance. A Rs 10,000 SIP would have accumulated Rs 4.22 lakh in 3 years and Rs 8.02 lakh in 5 years.

Top 5 Mid Cap Mutual Funds – SIP Comparison

Fund Name	3-Yr SIP Return (%)	3-Yr SIP Value (₹)	5-Yr SIP Return (%)	5-Yr SIP Value (₹)
Quant Mid Cap Fund – Direct Plan	22.01%	₹4.47 lakh	23.56%	₹9.12 lakh
Mahindra Manulife Mid Cap Fund – Direct Plan	20.67%	₹4.32 lakh	19.73%	₹8.10 lakh
Edelweiss Mid Cap Fund – Direct Plan	20.55%	₹4.31 lakh	18.17%	₹7.65 lakh
Nippon India Growth Fund – Direct Plan	19.48%	₹4.22 lakh	18.97%	₹7.94 lakh
Motilal Oswal Midcap Fund – Direct Plan	19.46%	₹4.22 lakh	19.60%	₹8.02 lakh

Note: SIP value calculated for Rs 10,000 monthly investment.