What Qualifies as Mid Cap?
SEBI defines mid-cap companies as those ranked 101st to 250th by full market capitalisation. Mid-cap funds must invest at least 65% of their portfolio in these companies. They are larger than small caps (more established, more liquidity) but smaller than large caps (more growth runway).
Historical Performance vs Large Cap
Over the last 15 years, the Nifty Midcap 150 TRI has delivered approximately 15.2% CAGR vs Nifty 50's 12.8% — a meaningful 2.4% alpha. However, mid caps fell 40% during the 2018 correction vs large caps' 15% fall, highlighting the volatility differential.
Risk Factors to Understand
- Liquidity risk — harder to sell large positions quickly
- Greater drawdowns in bear markets (typically 1.5–2x large cap falls)
- Higher valuation risk when markets are euphoric
- Concentrated sector exposure in many funds
Ideal Allocation
For investors with a 7+ year horizon and moderate-to-high risk tolerance, allocate 20–30% of equity to mid caps. Avoid going above 30% — the volatility at higher allocations overwhelms most investors psychologically.
When to Reduce Mid Cap Exposure
Reduce mid-cap allocation when the Nifty Midcap 150 P/E exceeds 35x or when it has outperformed large caps by more than 20% in the trailing 12 months. Both are signs of elevated valuations requiring caution.