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 |