The Nifty Midcap 150 Index has clocked handsome returns of nearly 162% over the last 5 years. That’s a CAGR of around 22% as of 27 January 2026.
The attractive returns have also encouraged many investors to deploy their hard-earned money into this market-cap segment. According to AMFI data, during this period, the inflows and folios into mid-cap funds have gone up 9x and 4x.
However, one also needs to be aware that midcaps are placed at the higher end of the risk-return spectrum. While the returns can get enthralling during bull markets, in a correction or a bear market phase, it can be disheartening as well.
During the 2020 COVID-19 pandemic crash, a black swan event, midcaps fell over 37% in 2020 before they took off from the lows.
Prior to that, in 2018-19, when there was a meltdown in midcaps (and smallcaps), the Nifty Midcap 150 index fell 13% and moved almost flat in 2019.
During the global financial crisis (GFC) of 2008-09, the Nifty Midcap 150 index fell by over 65%.
For those of you who have entered the world of equity investing after the pandemic, and haven’t witnessed equity market cycles, knowing these historical market events can help you be a better investor.
You see, every market-cap segment has its own cycle. The last five years have worked in favour of midcaps and smallcaps.
But against the backdrop of geopolitical tensions, protectionist policies, trade wars, and macroeconomic uncertainty that we are currently witnessing, the kind of stupendous returns you witnessed in midcaps (and smallcaps) in the last couple of years may not come through in the short-term. They can be rather vulnerable – and hence, keeping your return expectations rational is important.
In fact, in 2025, we have already seen the Nifty Midcap 150 index clocking a modest 5.1% absolute return, compared to attractive double-digit returns in the previous two years.
That being said, the recent market correction offers some opportunity to approach midcaps.
PE of the Nifty Midcap 150 Index
Valuation Audit: Are Mid-Caps Still Overheated?
Valuation-wise, the price-to-equity (PE) ratio of the Nifty Midcap 150 index is currently near the 5-year median. This is much below the peak of 45 seen in 2024, when the midcaps were at their peak.
The froth in midcaps has somewhat settled, but not completely. You need to approach midcaps thoughtfully and systematically.
Midcaps, as you may know, are 101st to 250th in terms of full market capitalisation. They are a level below largecaps; nonetheless, have the potential to be tomorrow’s largecaps.
Muthoot Finance, HDFC AMC, Canara Bank, Bosch, Polycab India, Page Industries, PI Industries, Trent, Tata Elxsi, are examples of companies that have transitioned from midcaps to largecaps over the last 5 years.
If you are looking to invest in midcaps, whether it is stocks or mutual funds, you need to keep an investment horizon of at least 7-8 years and be ready to assume very high risk.
When approaching mid cap funds, you need to pay attention to the portfolio characteristics. You simply cannot opt for any mid cap fund out there, hoping to earn good returns. The fund you choose must be from a fund house known to follow robust investment processes and systems.
Don’t just base your investment decision on historical returns, which may or may not necessarily sustain in the future.
With that said, let’s dig into what, in my view, are some of the best-managed mid cap mutual funds in India today.
The Top 3 Contenders
These 3 mid cap funds are chosen considering respectable portfolio characteristics, longer period returns and risk ratios.
Performance of the Top 3 Mid Cap Funds
| Returns – CAGR | Risk Ratios | |||||
| 3 Yrs (%) | 5 Yrs (%) | 7 Yrs (%) | SI (%) | Std Dev (%) | Sharpe Ratio | |
| HDFC Mid Cap Fund | 26.2 | 25.4 | 22.0 | 20.6 | 13.8 | 1.34 |
| Nippon India Growth Mid Cap Fund | 25.5 | 24.1 | 22.3 | 18.1 | 15.4 | 1.19 |
| Kotak Midcap Fund | 21.7 | 22.0 | 21.4 | 19.8 | 15.1 | 1.03 |
| Category Average | 22.1 | 21.1 | 19.9 | – | 15.6 | 1.01 |
| BSE 150 MidCap TRI | 22.5 | 21.8 | 20.3 | – | 15.7 | 1.03 |
The Portfolio Characteristics of the Top 3 Mid Cap Funds
| No. of Stocks | Top 10 Stock (%) | Top 3 Sectors (%) | PB Ratio | PE Ratio | |
| HDFC Mid Cap Fund | 77 | 33.2 | 52.9 | 3.6 | 26.4 |
| Nippon India Growth Mid Cap Fund | 97 | 24.3 | 60.5 | 4.1 | 28.4 |
| Kotak Midcap Fund | 65 | 28.3 | 55.2 | 4.6 | 29.8 |
source: fund factsheets
#1 HDFC Mid Cap Fund
This scheme was launched as HDFC Mid-Cap Opportunities Fund in June 2007 and was renamed HDFC Mid Cap Fund in June 2025.
It is among the popular and largest schemes in the mid cap funds category, managing assets over Rs 92,641 crore as per the December 2025 portfolio.
At present, the fund is holding nearly 93% of its assets in equities, and the remaining 7% is in cash & cash equivalents.
In line with its mandate, around 69% of its assets are in midcaps, 22% in smallcaps, and 9% in largecaps.
It invests in stocks which have reasonable growth prospects, sound financial strength, sustainable business models, and are available at acceptable valuations.
A bottom-up approach is followed to stocks, wherein it looks at reasonable growth prospects, sound financial strength, sustainable business models, and acceptable valuations.
The current portfolio valuation ratios – PB and PE – reveal that the fund is quite conscious of the value. It looks for growth opportunities at a reasonable price.
It usually holds 70-80 stocks and has limited the exposure in a single stock to well within 5%. Currently, it has 77 stocks in its portfolio, and the top 10 comprise 33.2% of the portfolio across sectors. This indicates that the fund is holding a well-diversified portfolio.
Top Holdings of HDFC Mid Cap Fund
source: fund factsheet
Moreover, it holds the portfolio with conviction following a buy-and-hold approach, as its last portfolio turnover ratio has been around 11%. It refrains from chasing momentum.
A cautious approach has helped the fund to perform well even during uncertain market phases and deliver appealing returns over the long-term.
The strategy followed by the fund has yielded a CAGR of 25.4% and 22.0% over the last 5 years and 7 years, respectively, outperforming the category average and its benchmark index (as of 27 January 2026).
The fund has exposed its investors to lower risk (standard deviation of 13.8%) than the category average and the benchmark, placing it as an above-average performer on a risk-adjusted basis (Sharpe ratio of 1.34).
#2 Nippon India Growth Fund
This scheme was launched as the Reliance Growth Fund in October 1995. After Nippon Life Insurance completed the takeover of Reliance Mutual Funds in September 2019, it was rechristened as Nippon India Growth Fund, and in June 2025, further renamed to Nippon India Mid Growth Fund, making its product labelling clearer.
It is among the oldest funds in the midcap category, currently managing assets of over Rs 42,124 crore as per the December 2025 portfolio.
Until 2017, the fund followed a multi-cap strategy, maintaining a balanced exposure across large-cap, mid-cap, and small-cap stocks.
However, after the mutual fund categorisation and norms took effect, it repositioned and was recategorised as a mid-cap fund.
At present, the fund is almost fully invested, with 98% exposure to equities and 2% in cash & cash equivalents.
Within equities, 72% are midcaps, around 10% smallcaps, and 18% largecaps.
The follows a bottom-up approach to pick stocks, adopting a growth at a reasonable price (GARP) strategy.
A blend of growth and value style of investing is followed by the fund. The portfolio valuation ratios – PB and PE are reflective of that.
It approaches stocks with a very long-term perspective and avoids momentum bets. The last portfolio turnover ratio is 4%. This has helped the fund navigate various economic cycles and India’s growth story.
The fund holds a large portfolio of 90-100 stocks, which is positive from a risk management standpoint but may also dilute returns if a portion of the portfolio doesn’t perform.
Currently, the fund has 97 stocks, and the top 10 comprise 33.2% of the portfolio across sectors.
Top Holdings of Nippon India Growth Fund
source: fund factsheet
In the last five years, many of the fund’s top holdings, such as BSE Ltd., Fortis Healthcare, AU Small Finance Bank, etc., have performed phenomenally well, helping to push the performance of Nippon India Growth Fund.
In the last 5 years and 7 years, the fund has clocked a CAGR of 24.1% and 22.3%, respectively, outshining the category average and the benchmark.
Moreover, the fund has kept the risk well in check (standard deviation of 15.4), slightly below the category and the benchmark. Thus, on a risk-adjusted basis (Sharpe ratio of 1.19), the fund is an average risk-high return performer.
#3 Kotak Mid Cap Fund
This fund was launched as Kotak Emerging Equity Fund in March 2007. Last year, in June 2025, it was renamed Kotak Mid Cap Fund, helping investors relate better after the mutual fund categorisation norms.
Over the years, the fund’s AUM has grown and, today, it is the second-largest fund with an AUM of over Rs 60,636 crore as of December 2025.
At present, 99% of its assets are in equities, 0.8% in cash & cash equivalents, and around 0.2% in debt & money market instruments.
Within equities, 73% are in midcaps, 14% in smallcaps, and 13% in largecaps.
Like its peers, the fund follows a bottom-up approach. It looks at parameters such as debt-to-equity ratio, return ratios, cash flows, liquidity of the stock, and reputation and competence of the management, among other factors.
While identifying growth opportunities, it emphasizes on stocks trading at a material discount to their intrinsic value.
The portfolio is well-distributed across cyclical and defensive sectors. It usually holds 60-80 stocks. Currently, it has 65 stocks, of which the 10 comprise 28.3%, making it fairly diversified.
Top Holdings of Kotak Mid Cap Fund
source: fund factsheet
The portfolio valuation ratios reflect GARP philosophy. Moreover, the fund follows a buy-and-hold approach but does not refrain from churning at times (portfolio turnover ratio of 24%).
The strategy followed has helped to cushion the impact of market corrections and sustain performance through varying market phases.
Over the last 5 and 7 years, the fund has clocked a CAGR of 22.0% and 21.4%, respectively, higher than the category average and the benchmark.
The fund has exposed its investors to slightly low risk (standard deviation of 15.6%) and earned decent risk-adjusted returns (Sharpe ratio of 1.03). In other words, it is a decent risk-reward contender.
To Conclude
Mid cap funds are high risk-return proposition. They can oscillate from highs to lows and vice versa quickly. You need to have the stomach for high risk before investing and consider them only as part of your satellite portfolio.
Invest sensibly, considering your personal risk appetite, broader investment objective, the financial goal/s you are addressing and the time in hand to achieve those envisioned goal/s when investing in mutual funds.
Happy investing.
Note: We have relied on data from www.valueresearchonline.com, www.financialexpress.com, and the factsheets published by the respective fund houses throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
Returns data as of 28 January 2026. Direct Plan and Growth Option Considered. The Risk Measures have been calculated using calendar month returns for the last three years. The Risk Measures have been calculated using calendar month returns for the last three years and are as of 31 December 2025.
Standard Deviation is a measure of the total volatility of the fund. The Sharpe Ratio is a measure of risk-adjusted return that shows how much excess return an investment generates for each unit of risk taken.
Portfolio data as of 31 December 2025. The average of the price-to-book value ratios and price-to-equity ratios of all underlying stock holdings in proportion to their portfolio weights is considered.
Disclaimer:
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.
Rounaq Neroy has over 20 years of experience in the financial markets and investments. He is a close observer of the Indian economy and writes deeply on the capital markets, mutual funds, stocks, precious metals, asset allocation, wealth management, and investment strategy. His editorials provide interesting, actionable investment ideas to guide readers in the journey of wealth creation and make wise decisions. Rounaq was the Head of Content at PersonalFN (Quantum Information Services Pvt. Ltd.), which also owns Equitymaster.com – India’s oldest and trusted equity research house.