Don't Miss Out: The Category That Can Balance Risk With Return In Your Portfolio

All work and no play makes Jack a dull boy. Though this is true, no work and all play does not make him a bright boy either. The need for balance in life is something that is often talked about. This applies to investing as well.

While investors allocate assets according to their goals and risk tolerance, every category serves a specific purpose in the portfolio. Large caps are intended to bring a certain degree of stability, while small caps bring high rewards, but is paired with high risk as well.

Now, if the investing in these two categories alone can strike a balance between risk and returns, why even have mid caps in your portfolio?

The case for mid caps is simple; they hit the sweet spot between large caps and small caps. Though large caps provide stability, their returns often weigh down one's portfolio. While, the dazzling returns of small caps come with high volatility. This category is often able to blend the advantages of both categories, as mid cap returns have been closer to small caps.

"Mid cap is often not talked about, but their performance over the last few years warrants a look. They offer you the growth potential that small gives, but with the stability of large cap," said Varun Fatehpuria, the founder of Daulat Wealth Management.

The category itself has performed well over the last few years and Fatehpuria points out that most flexi caps run with a heavy large cap bias. The issue being that this bias will hold back both growth and returns as a whole.

Allocation to mid and small is important as it is the run up in the mid cap that is responsible for good performance of multi-cap funds as well, said Fatehpuria.

Pankaj Mathpal, managing director of Optima Money Managers, echoes this.

"Mid caps provide better growth and is less volatile compared to small caps," he said. There are also certain sectors that one can get some exposure to when investing in mid-caps.

"Chemicals, pharma, durables have good exposure and one cannot ignore midcaps," said Mathpal. Investors automatically invest in mid caps through flexi caps and multi caps, but the exposure to midcaps specifically will be based on the fund manager's calls.

Watch the full conversation here: