Mid Cap Stocks: Meaning, Features, Benefits & Risks Explained
When you invest in the stock market, companies are grouped based on their market capitalization—that is, their total value on the stock exchange. These are called large-cap, mid cap, and small-cap stocks. This grouping can change as a company grows or shrinks in size.
What Are Mid Cap Stocks?
Mid cap stocks are shares of companies that fall between large and small companies in terms of market size. Here’s a simple chart:
In India, companies ranked from 101 to 250 on the Nifty index are usually considered mid-cap. There’s also a special index called Nifty Midcap 50, which includes the 50 most traded mid-cap companies.
Key Features of Mid Cap Stocks:
- Wide Range: Some mid-cap stocks are growing fast, while others are more stable. They offer a balance of risk and return.
- Growth Potential: These companies are in the growth phase. In good market conditions, they can grow quickly and give high returns.
- Moderate Risk: Mid-caps are riskier than large-caps but safer than small-caps.
- More Liquid: Mid-cap stocks are easier to buy and sell than small-cap stocks because they’re more well-known.
Why Invest in Mid Cap Stocks?
- High Growth Possibility: Mid cap companies often grow faster than large companies.
- Good Returns: These companies can give better returns as they grow in size.
- Affordable Entry: They are often less noticed by big investors, so you might find undervalued gems.
- Availability of Information: Unlike small-caps, you can usually find enough financial information to study and invest wisely.
Risks to Watch Out For:
While mid-cap stocks can be rewarding, they also carry certain risks:
- Value Trap: Some mid-cap companies may not grow as expected and remain stuck at a low level of profit.
- Weak Management: Some may not have strong leadership or systems to handle rapid growth.
- Bubble Effect: Sudden high performance could be due to market hype. If the market corrects, these stocks may fall sharply.
Safer Alternatives to Mid Cap Stocks:
If you’re looking for less risky options, consider:
- Sovereign Bonds: Issued by the government, offering regular income with low risk.
- Debt Funds: Invest in fixed income assets like bonds and treasury bills.
- Balanced Funds: Mix of stocks and bonds—help you get decent returns while keeping risk in check.
Talk to a financial expert to choose the right investment based on your goals and risk level.
FAQs:
It’s a stock from a company with a value between ₹5,000 crore and ₹20,000 crore. These stocks offer balanced growth and risk.
You can invest directly in these stocks or through mid-cap mutual funds and ETFs. Always research the company’s background before investing.
Note: The views shared in this article are for education and awareness only. They are not investment advice or stock recommendations.
