Large Cap vs Mid Cap vs And Small Cap Funds

byDilip PrasadLast Updated: April 18, 2024
Large Cap funds offer stability with lower volatility and consistent returns, while Small Cap funds entail higher risk and potential for significant returns due to their greater growth potential. Mid Cap funds fall in between, offering moderate risk and potential returns.
Large Cap vs Mid Cap vs And Small Cap Funds

Investing in mutual funds offers individuals a diverse range of options to suit their financial goals and risk preferences. Among these, large-cap, mid-cap, and small-cap funds stand out as distinct categories, each with its own set of characteristics and investment strategies. 

Every investor needs to understand the differences between these fund types to build a well-balanced portfolio that aligns with their objectives.

Large-cap funds focus on established, financially robust companies, offering stability and steady growth potential. Mid-cap funds, on the other hand, target companies in a phase of growth and expansion, balancing potential returns with moderate risk. Small-cap funds invest in smaller, often younger companies with significant growth potential, albeit accompanied by higher volatility.

Let’s Understand the All Three Funds

Small-Cap Funds

Investments are made in companies with a market cap of less than INR 5,000 crore. These companies are relatively smaller in size but they have enough growth potential. The investment may involve risks as there is a lower chance of them being successful over time. They have a short history or record and their rank starts from 251, when sorted by market cap. 

Note: Small-cap stocks are known to have the least liquidity. Investors may not have enough shares available to buy at the right price or they may find it difficult to sell shares quickly at favourable prices.

Mid-Cap Funds

These investments are quite valuable; they are made in mid-cap companies with a market cap between INR 5,000 and INR 20,000 crore. These companies tend to be more volatile and investments may involve higher risks than large-cap companies. However, over time these companies have the potential to transform and grow into large-cap companies and can attract more investors. 

Note: Mid-cap stocks have lower liquidity than large-cap stocks. The demand for these shares is lower than large-cap funds due to market risk.

Large-Cap Funds

In this particular type, investments are made in large-cap companies, which are well-established and have a significant market cap of INR 20,000 crore or more. These companies are stable and dominate the industry. They have a good reputation and have been performing well for decades. People who are willing to take less risk can invest in these stocks which are low-risk in nature and the returns are relatively lower than mid and small-cap stocks. 

Note: Large-cap stocks have high liquidity due to high demand for their stocks in the market. This means that an investor can buy or sell shares easily, without affecting the share price. 

Who Should You Invest in Mutual Funds?

Anyone can invest in mutual funds. With increased advertisements, more and more people have become aware of the need to invest in these funds. If you have a source of income, you can become an investor. 

  • Mutual funds can help you achieve both short and long-term financial goals.
  • Whether you want to get your hands on a decent sum of money within a short period or wish to withdraw a substantial figure in the long term for goals like children’s education, marriage and retirement, mutual funds can come to your aid. 
  • Mutual fund investments are ideal for investors who do not have much knowledge about stock investment, yet, and who do not wish to pour money monthly into regular savings schemes. These investments are ideal for people who want to maximise tax benefits. 

While investing it is crucial to consider factors like your financial goals and the risks you are willing to take. One must do proper research and analysis of the entire share market. It is also a good idea to spread out your investments across the three categories instead of opting for any one category.

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