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Large, mid or small – Which is your cap?

Finance

Large, mid or small – Which is your cap?

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When it comes to diverse investment options, investing in mutual funds is gaining popularity among many investors. Many consider mutual funds an investor-friendly option due to the low cost of investment and the transparency these funds offer. Among the different types of mutual funds are equity funds, ideal for long-term investment plans. These funds are further classified based on their market capitalization.

Large, mid or small

Market capitalization refers to a company’s size or market value of a company’s outstanding shares. The market cap for a company can be derived by multiplying the market price of each share with the total number of outstanding shares of the company. The market cap further falls into three broad categories – small-cap, mid-cap, and large-cap.

Small-cap is for companies with relatively small market capitalization. Usually, a company having less than Rs and 5,000 crore value is termed a small-cap company.

Mid-cap companies have a market capitalization of less than Rs. 20,000 crore and a lower cap limit of Rs. 5,000 crore.

Large-cap companies have a market cap that is greater than Rs. 20,000 crore.

Further, small-cap, mid-cap, and large-cap funds can be differentiated based on the following attributes:

Large-Cap

 

Mid-CapSmall-Cap
These funds belong to companies generally the top 100 companies in a market with a large market .capitalizationThese funds belong to companies with mid-market capitalizationFunds of companies that have small market capitalization fall in this category
These funds have relatively lower risk when compared to mid-and small-cap fundsMid-cap funds are relatively less risky than small-cap ones and riskier than large-cap fundsThese funds have a relatively higher risk as compared to large- and mid-cap funds
A large-cap mutual fund invests a minimum of 80% of its assets in equity and related instruments of large-cap companiesA mid-cap fund invests at least 65% of its assets in equity and related instruments of mid-cap companiesA minimum of 65% is invested in equity and related instruments of small-cap companies
Reliance, Tata Consultancy Services, Infosys, and Maruti Suzuki are a few examples of companies that a large-cap fund invests inCompanies such as Biocon, Federal Bank, Tata Global Beverages have investments made by mid-cap fundsExamples of small-cap companies are India Cement, VIP Industries, and Persistent System, wherein small-cap funds invest

Investors with a low-risk appetite and substantial funds can invest in a large-cap fund. Large-cap is suitable for investors who have a long-term horizon and are looking for relatively stable returns.

For moderate risk-takers, mid-cap funds could be an ideal option. These provide better returns than large-cap mutual funds. Small-cap usually comprises the most underrated funds, many experts believe. These mutual funds provide better returns than large- and mid-cap funds and involve a higher degree of risk.

As per the risk, liquidity, growth potential, and amount of return, you can decide which fund to invest in. However, your decision should also factor in your investment goals, risk appetite, and investment horizon.

Beatrice Nelson

Explorer. Extreme communicator. Problem solver. Alcohol buff. Beer geek. Twitter nerd. Bacon lover. Food fan. Wannabe tv fanatic. Managed a small team deploying velcro in Bethesda, MD. Spent a weekend working with hobos in the financial sector. What gets me going now is merchandising plush toys in Ocean City, NJ. Garnered an industry award while merchandising dandruff for the government. At the moment I'm short selling Slinkies in New York, NY. Spent 2001-2006 researching terrorism in Salisbury, MD.

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