Can a mid-cap fund offer enough large-cap exposure?

Summary: A reader asks whether a single mid-cap fund can do the job of both growth and diversification. The piece unpacks how fund categories are designed, and why similar-sounding exposure can mean very different portfolio roles.

A mid-cap fund is an equity scheme built primarily around companies ranked 101st to 250th by market value. For investors, this means the category can include some large-cap exposure, but that exposure is incidental, not the category’s core job. 

According to SEBI’s 2017 categorisation circular, mid-cap funds must keep at least 65 per cent in mid-cap stocks, while Value Research’s September 2025 category analysis shows the average mid-cap fund held about 69 per cent in mid caps, 16 per cent in large caps and 15 per cent in small caps. That makes a mid-cap fund a concentrated market-cap bet first, and a diversification shortcut only in a limited sense.

Why a mid-cap fund does not automatically replace large-cap exposure

A mid-cap fund is a category defined by what it must predominantly own. For investors, this means any large-cap allocation inside it is secondary to the fund’s mid-cap mandate. SEBI’s categorisation framework requires at least 65 per cent in mid-cap stocks, and Value Research data published in September 2025 shows the average mid-cap fund still held roughly 69 per cent in mid caps, with only about 16 per cent in large caps. That is a meaningful cushion, but not the same thing as a deliberate large-cap allocation.

The contrast becomes clearer when set against the large-cap category itself. As per a Value Research analysis, large-cap funds are allowed to invest up to 20 per cent outside large caps, yet the average large-cap fund still had only 2.95 per cent in mid caps and 2.46 per cent in small caps. In other words, category labels still anchor portfolio behaviour. A mid-cap fund may carry some large caps, but it remains structurally mid-cap-led.

What changes when the rulebook shifts across categories

A fund category is a rulebook, not just a label. For investors, this means diversification depends less on the name and more on the minimum allocation the category must maintain. SEBI’s rules make a mid-cap fund keep at least 65 per cent in mid caps, a multi-cap fund keep at least 25 per cent each in large, mid and small caps, and a flexi-cap fund keep at least 65 per cent in equities without a fixed split across market caps. That is why three categories that all sound ‘diversified’ can still behave very differently.

As of June 2025, the average mid-cap fund held 69 per cent in mid caps, 16 per cent in large caps and 15 per cent in small caps. As of October 2025, the average multi-cap fund held 40 per cent in large caps, 29 per cent in mid caps and 30 per cent in small caps, while flexi-cap funds parked about 61 per cent in large caps because managers had the freedom to lean there. That makes the distinction easier to see.

A useful way to track these differences in real time is the fund category monitor and Value Research’s broader tools and calculators.

What current category data says about diversification

Diversification is the spread of portfolio risk across different parts of the market. For investors, this means a category that looks broader on paper still needs to be tested against actual market-cap exposure, return history and category size. 

AMFI’s (Association of Mutual Funds in India) Annual Report for fiscal 2025 shows equity-oriented mutual fund AUM at Rs 29.5 lakh crore as of March 31, 2025. Within that pool, flexi-cap and sectoral/thematic funds each accounted for 15 per cent, mid-cap funds 13 per cent, large-cap funds 12 per cent, large & mid-cap funds 9 per cent and multi-cap funds 6 per cent.

Return history also shows why ‘diversified’ and ‘less volatile’ are not the same thing. Value Research shows 10-year annualised returns of 16.25 per cent for mid-cap funds, 14.62 per cent for large & mid-cap funds and 13.53 per cent for flexi-cap funds. Over three years, multi-cap funds returned 16.71 per cent, compared with 15.92 per cent for large & mid-cap and 14.44 per cent for flexi-cap. The pattern is not a verdict on what an investor must own; it simply shows that more forced diversification, more flexibility and more mid-cap concentration are three different portfolio outcomes, not interchangeable versions of the same exposure.

Frequently asked questions (FAQs)

Does a mid-cap fund always carry about 30 per cent in large caps?

A mid-cap fund is a category with room for flexibility, not a fixed formula. For investors, this means the non-mid-cap portion can move, and Value Research’s September 2025 analysis put the average large-cap slice at 16 per cent, not 30 per cent.

Is a multi-cap fund automatically more diversified than a flexi-cap fund?

A multi-cap fund is diversified by mandate. For investors, this means it must hold at least 25 per cent each in large, mid and small caps, whereas flexi-cap funds can shift more heavily into one segment, including roughly 61 per cent in large caps in October 2025.

Where does a large & mid-cap fund fit in this discussion?

A large & mid-cap fund is a category designed to balance stability and growth. For investors, this means it must keep at least 35 per cent each in large and mid caps, and Value Research’s current category data shows 10-year annualised returns of 14.62 per cent.

Do category names tell the whole story?

A category name is the starting point, not the finish line. For investors, this means the rulebook matters first, but portfolio behaviour still varies: large-cap funds can use up to 20 per cent outside large caps, and average large-cap funds still carried only 2.95 per cent in mid caps and 2.46 per cent in small caps in August 2025.

What this means for your decisions

The data show that a mid-cap fund’s large-cap allocation is usually a byproduct of flexibility, not a substitute for a dedicated large-cap allocation.

The regulatory framework means multi-cap, flexi-cap and mid-cap funds are solving three different diversification problems, even when all three invest across the equity market.

Investors who understand the rulebook first tend to read category labels more accurately than investors who focus only on the presence of some large-cap holdings inside a portfolio.

Also read: Why do small-cap funds invest in mid-cap companies?

This article was originally published on February 17, 2025, and last updated on March 17, 2026.