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.

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 claim with the total number of outstanding shares of the company. The market cap 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:

Investors with a low-risk appetite and substantial funds can invest in a large-cap fund. Large-cap is suitable for investors with a long-term horizon and 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 offer 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.