Mutual Funds across Market Caps

Large-cap funds, mid-cap funds and small cap funds. In this the word ‘cap’ refers to the market capitalisation, or the size, of a listed company.
Large cap funds

• Invest a larger proportion of their corpus in companies with large market capitalization. Such companies typically have generated wealth for their investors slowly and steadily over a long term.
• On the risk-return spectrum, large-cap funds deliver steady returns with relatively lower risk, compared with mid- and small-cap funds.
• They are ideal for investors with lower risk appetite.

Mid-cap funds

• Mid-caps are those that they lie between large-caps and small-caps in terms of company size. During a bull phase, mid-cap stocks may outperform their large-cap counterparts, as these companies seek to expand by looking out for suitable growth opportunities.
• Mid-cap equity funds are advised for investors with a higher risk tolerance than large-cap investors.
• So, invest in these schemes if you seek higher capital appreciation, albeit with reasonably higher risk.

Small caps funds

• Small-cap stocks typically have the highest growth potential, since the underlying companies are young, and seek to expand aggressively.
• They are more vulnerable to a business or economic downturn, making them more volatile than large and mid-caps.
• Investors who possess the high risk-taking capacity can look to invest in small cap funds.

 

Fund market capitalization	What are they?	Risks	Ideal for
Large-cap funds	Invest in large firms. Endeavor to provide better capital appreciation over a long term and distribute dividend fairly regularly. As they are financially strong, they are capable of withstanding bear markets.	High Risk. May under-perform the small- and mid-cap funds during a bull market.	Risk-averse investors, who want equity exposure to high-quality stocks, and have a long-term investment perspective.
Mid-cap funds	Invest in medium-sized companies that are actively seeking investment opportunities for expansion.	High Risk. Mid-caps are more volatile than large-caps.	Investors with a greater risk-taking ability compared with large-cap fund investors, who want to capture the price gains during a bull market.
Small-cap funds	Invest in small-cap companies, which may have higher growth potential	High Risk, Prices have greater volatility compared to both large-caps and mid-caps.	Investors with high risk appetite and higher return expectations