New Delhi, Sept. 15 -- Mid-cap mutual funds continue to attract investors even as valuations remain above their long-term averages. Fund managers say the interest is increasingly supported by earnings growth, domestic demand and the expansion of India's formal economy, rather than simply recent market performance.

However, the optimism comes with a caveat. With valuations elevated in several pockets, investors may have less room for disappointment if earnings fail to meet expectations. Fund managers say stock selection and portfolio diversification across market capitalisations remain important.

The sustained interest in mid-cap funds appears to be driven by more than a search for quick returns. Ankit Jain, senior fund manager at Mirae ...