The Difference Between Large Cap, Mid Cap, And Small Cap Funds
Mutual funds are one of the best ways to save and invest money to generate good returns in the future. There are several mutual funds available based on Market Capitalization and Risk appetite.
If you are a beginner who is just diving into the world of the stock market, you may come across different jargon related to the stock market, such as Large-cap funds, Mid-cap funds, blue chip companies, and many more. Let us begin with the basics and understand what market capitalization is.
Understanding Market Capitalization:
The market value of all the shares owned by a company’s shareholders is known as market capitalization. The worth of a company is determined by the stock market.
It is also defined as the market value of all outstanding shares. It is calculated by multiplying the entire number of a company’s outstanding shares by the current market price of one share, which is commonly referred to as ‘market cap’.
There are three types of market capitalizations:
- Large-cap
- Mid-cap
- Small-cap
What are large-cap, mid-cap, small-cap companies, and what is the difference between them? SEBI (Securities Exchange Board of India) established certain regulations in 2017 to categorize companies according to their market cap.
Now, we see the differences in these market capitalizations in detail below.
Large-cap Companies:
The SEBI has developed criteria for classifying companies. The top 100 companies listed in the stock market based on market capitalization are classified as large-cap companies. The mutual funds that hold the companies from the large-cap are called Large-cap funds.
Large-cap companies usually have good track records. The market value (market cap) of these companies is significantly high. These are also called blue-chip stocks. The market cap for these companies is around Rs.20000 crores and more, and they have a strong market presence.
Mid-cap Companies:
SEBI established a rule in the year 2017, according to which companies that are ranked from 101 to 250 in terms of market capitalization are known as mid-cap companies. The market cap for these companies will be around Rs.5000 to Rs.20000 crores. Mutual funds that hold stocks from the mid-cap are called Mid-cap funds.
Mid-cap companies also have a good track record, but the difference is noticeable compared to large-cap companies. Mid-cap funds are involved with more risk than large-cap funds. Mid-cap companies may or may not be included in broad market indexes due to their limited market presence.
Small-cap Companies:
The companies ranked from the 251st position onwards in terms of market capitalization are known as small-cap companies. The market cap for these companies is below Rs.5000 crores. The mutual funds that hold stocks from the small-cap are called Small-cap funds.
Small-cap companies don’t have a long track record. For example, a start-up company or a company that is under development can fall under the small-cap sector. These companies are mostly not included in the broad market indices because of their negligible market presence.
Let us understand the difference between Large-cap, Mid-cap, and Small-cap funds with respect to risk profile, liquidity and volatility, and returns and growth.
Differences Between Large, Mid and Small-Cap Funds:
Here is the difference between small cap mid cap and large cap based on various factors-
Keep in mind that different stock exchanges and market situations may alter how companies are classified. When evaluating investment opportunities, it is critical to consider a range of factors and market trends.
Key Takeaways to Get from the Difference Between Large Cap, Mid Cap, And Small Cap Funds
- Large-cap funds are less risky than small and mid-cap funds.
- Small and mid-cap funds have higher growth potential than large-cap funds.
- Large-cap funds are good for conservative investors.
- Mid and small-cap funds are suitable for medium-risk takers to aggressive investors.
Please note,
The views in the article/blog are personal and that of the author. The idea is to create awareness and for educational purpose and not intended to provide any product recommendations.
