Difference Between Large Cap,
Mid Cap and Small Cap Funds
What is Market Capitalization?
The
stock market determines the worth of a company through its market
capitalisation or market cap. Market capitalisation is the market value of the
shares held by the company’s shareholders. The market value of a company is
also defined by the number of shares outstanding. Market capitalisation is of
three types as per the regulations established by the Securities Exchange Board
of India (SEBI):
· Large Cap
· Mid Cap
· Small Cap
In
this article, you will learn about the different types of funds based on their
market capitalisation.
What is a large-cap company?
The top
100 companies that are listed on the stock exchange based on their market cap
are termed as large cap companies. Large cap funds hold the stocks that form part of large cap
companies. Since the market value of these companies is high i.e. around Rs.
20,000 crore or more, these are also known as “blue chip companies”.
What are mid-cap companies?
The
companies that are ranked from 101 to 250 according to their market cap are
known as mid cap companies. These companies have a market cap of around Rs.
5,000 to Rs. 20,000 crores. Mutual funds that hold stocks of these companies
are known as mid cap funds.
The mid cap funds are considered riskier than the large cap funds.
What is small-cap companies?
The
companies that are ranked from 251st position onwards and have a market
cap of below Rs. 5,000 crores are known as small cap companies. The mutual
funds that hold shares of small cap companies are known as small cap funds.
What Is The Difference Between Large Cap, Mid Cap and Small Cap Funds?
· Risk
Large
cap funds are considered less risky in comparison to the mid and small cap
funds. Mid cap funds are known to carry lesser risk than the small cap funds
but are considered slightly risker than the large cap funds. Small cap funds are
known to be the riskiest among the two but they carry tremendous growth
potential.
· Volatility
and Liquidity
Large
cap funds are less volatile. They are known to offer significant returns and
have good liquidity. Mid cap funds are moderately volatile and moderate liquid.
While the small cap funds have less liquidity and are more volatile.
· Returns
Large
cap funds are known to provide consistent and steady returns. Mid cap funds are
known to carry more risk than the large cap funds so they have the potential to
offer higher returns. Small cap funds being the riskiest among the two, have
the potential to offer outstanding returns.
· Where
to Invest?
Large
cap funds can be an ideal option for conservative investors in long term. For
investors willing to bear some risk with long term horizon, mid cap funds can
be an ideal choice. Small cap funds are ideal for high-risk investors in the short
term.
· Growth
The
companies that are part of large cap funds are known for generating stable
growth and returns. While mid cap funds have moderate potential for growth.
Small cap funds can deliver higher growth than large and mid-cap funds.
Conclusion
In
simple words, the choice to invest in these funds depends on your risk profile
and return expectations. Before investing in any of these funds, it is wise to determine
what you are expecting from your investment.
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