Mutual funds
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If you’re in the mindset of a patient investor, someone willing to stay on the course and let time do its work, then one smart strategy is to look at mid-cap funds, especially those that qualify as tax-efficient mutual funds. These funds strike a balance between growth potential and long-term savings benefits, making them ideal for investors who don’t want to lose too much to taxes over time. Let’s unpack what that means, why it matters, and then I’ll walk you through three mid-cap schemes that stand out among the most tax-efficient mutual funds available today.
Why Mid-Caps + Tax Efficiency?
Mid-cap mutual funds are equity funds that invest primarily (typically ~65 % or more) in companies that are ranked roughly 101-250 by market cap in India. That means they’re not giants yet, but they’ve got potential to grow. Over the past several years, this segment has delivered strong returns.
But with higher return potential comes more volatility, so a patient’s horizon (5-10 years) helps.
Now, pairing mid-caps with tax-efficient mutual funds means you’re also thinking about what happens after taxes. Tax-efficient mutual funds (or simply funds held in a tax-efficient way) focus on structuring your investments, so you end up keeping more of what you earn.
For instance, for equity-oriented funds in India, long-term capital gains (LTCG) above certain thresholds attract 12.5% tax (on gains above the exempt amount) if held more than 12 months.
So, the strategy: Choose strong mid-cap funds, invest with a long horizon, and pay attention to tax rules → aiming for tax-efficient mutual funds inside your portfolio.
Three Mid-Cap Funds Worth Knowing
Here are three well-known mid-cap funds. Again: this is educational, not personal financial advice. Always check the latest performance, expense ratio, portfolio, etc.
1. Motilal Oswal Midcap Fund
• This fund shows consistently among the top in the mid-cap category. For example, it is mentioned in the list of mid-cap funds delivering over 25% CAGR in recent years.
• According to Moneycontrol, the fund had ~74.81% investment in domestic equities and focused on mid and small-cap stocks
• Why I like it for a patient investor: solid track record, mid-cap focus (so growth potential) + you’re likely to benefit from long-term holding, which helps from a “tax-efficient mutual fund” stance
2. Edelweiss Mid Cap Fund
• Groww lists its 5-year annualised returns as ~31.39% in one direct plan figure
• It has had a very strong performance in mid-cap space
• From a tax-efficiency lens: If you hold this fund through a direct plan, stay invested beyond 12 months (for equity exposure) and ensure you’re tracking long-term gains rather than churning. You’re aligning with the “tax-efficient mutual funds” approach.
3. Mahindra Manulife Mid Cap Fund
• Also appears in lists of good mid-cap funds: Groww shows 5-year annualised ~29.46%
• It gives you another option in mid-cap space. For a patient investor, having more than one strong mid-cap fund helps with diversification.
How to Invest in Tax-Efficient Mutual Fund Behaviour
Here are a few habits/strategies to keep things tax-efficient when you’re in mid-cap funds:
• Hold for the long term. Since equity funds (where >65% in equity) get favourable long-term capital gains treatment if held >12 months.
• Go with a direct plan if possible. Direct-plan versions have lower expense ratios, which improves net returns (and thus net after-tax returns).
• Minimise frequent switching/trading. High turnover can trigger more short-term gains, which are taxed at higher rates. A low-turnover style helps with tax efficiency.
• Reinvest or keep dividends minimal. Dividends are taxable as “income from other sources” and hit you earlier rather than deferring gains. So, if you’re aiming for growth + tax efficiency, the growth option (with no payout) may help.
• Track the exempt threshold. For equity funds: long-term capital gains up to ₹1.25 lakh per year are exempt (as of recent rules).
• Avoid making taxes for the only driver. Never pick up a fund only because you like the “tax-efficient” label; the core must be a quality fund with decent fundamentals.
A Few Caution-Flags for Mid-Cap + Tax-Efficient Approach
• Mid-cap funds can be volatile. The growth potential is there, but so is the downside risk. Having the “patient investor” mindset matters.
• Performance in the past doesn’t guarantee future returns
• Tax efficiency doesn’t mean tax-free. You still must pay taxes where applicable; you’re just structuring to reduce or delay.
• The “tax-efficient” benefit is most relevant when you hold and don’t frequently redeem. If you redeem early or switch often, you may lose that benefit.
My Takeaway for You
If you’re comfortable with mid-cap equity exposure, and you’re willing to stay invested for say 5–10 years, then picking up a good tax-efficient mid-cap mutual fund and thinking through the tax side gives you double benefits. You’re playing growth and playing smart with taxes. The funds above are good starting points.
And by choosing a tax-efficient mutual fund style (i.e., keeping the investment long-term and minimising unnecessary actions), you increase your chance of keeping more of the gains.
Also read: The Investor’s Guide to Tax Efficient Mutual Funds
