What is the basic differences between Large Cap, Mid Cap and Small Cap Mutual Funds?

What is the basic differences between Large Cap, Mid Cap and Small Cap Mutual Funds?

Equity mutual funds can be classified based on their market capitalization. There are three types of equity mutual funds: large-cap, small-cap and mid-cap. We will be discussing the differences between small-cap, large-cap and mid-cap funds in this article.

First, let's review the basics.

What do you mean by Market Capitalization?

Simply put, market capitalization is the value of all outstanding shares in a company. It does not refer to the share price, but the value per share. Let's start by asking you a question.

The share price for Company X is Rs.25, while Company Y's is Rs.60. Which company is more valuable? Which company is more stable?

This question is difficult to answer because the information available is very limited.

Let's say Company X has 500,000 shares and Company Y has 100,000 shares. Which company is more valuable?

This is more logical now. The total value of the outstanding shares in both companies is:

  • Company X - 500,000 x 25, = Rs.1.25 Crore
  • Company Y - 100,000 x 60% = Rs.60 lakh

Therefore, Company X is more valuable than Company Y. This is called market capitalization, or market cap. It is calculated using the following formula:

Number of outstanding shares x share price

Companies are classified based on their market capital as large-cap, mid-cap, or small-cap. The Securities and Exchanges Board of India has established these standards to ensure equity schemes adhere to uniform norms.

  • Large-cap Companies - 1st through 100th companies in terms of market capitalization
  • Mid-cap Companies - 101st through 250th companies in terms of market capitalization
  • Market capitalization - Small-cap companies – 251st company afterward

Important to remember that the share price fluctuates, so the company's market capitalization also changes. The company's market capitalization also increases when it issues more shares to the public. The market cap drops when a buyback is done. Market cap is now understood. Let's examine large-, mid-, and small-cap funds.

What are large-cap, mid-cap, and small-cap funds?

  • Large Cap equity funds are flexible, open-ended equity funds that invest at least 80% in large-cap stocks. Large-cap companies have a strong track record and are reliable. They have a reputation for generating wealth for their investors.
  • Midcap funds are equity funds that can be opened-ended and invest around 65% in equity or equity-related instruments from mid-cap companies. These funds have been around for a while and have a solid track record. Many of these companies will become large-cap businesses. The mid-cap sector is a great place to grow with controlled risks.
  • Small capital funds are open-ended equity funds that invest at least 65% in small-cap stocks. These funds are for smaller companies and new entrants to the market. These funds offer high growth potential but come with a lot of risks. These funds are recommended for investors who have a higher tolerance for risk.

There is a difference between large-cap, mid-cap, and small-cap funds

These are the key differences among large-cap, small-cap, and mid-cap funds.

Risk Profile
Large Cap FundsBecause they invest in stocks from the 100 largest companies, these funds are considered the safest of the three. The NIFTY 50 companies are the most common.
Mid Cap FundsThese funds are more-risker than large-cap investments, but they are less risky than smaller-cap funds.
Small-Cap FundsThese funds are the most-risker of all three. The capital base of small-cap companies is low. These stocks have great growth potential, despite the risks.
Large Cap FundsThese schemes offer stable returns and lower volatility. In the last five years, the average return has been 7%
Mid Cap FundsThese schemes provide better returns than large-cap investments. The average 5-year returns of these schemes are 10.28%.
Small-Cap FundsThey are the riskiest schemes and offer good returns. The 5-year average was 14.72%.


Role for the Fund Manager
Large Cap FundsThese funds invest mainly in large-cap stocks so the fund manager must choose stocks according to the scheme's investment objective. These companies are easily accessible and have stable returns. The fund manager must therefore be more focused on stock selection.
Mid Cap FundsIt is difficult to find information about companies in the mid-cap sector. The fund manager must do extensive research on the companies before investing. Mid-cap companies have the potential to grow big. These opportunities must be identified by the fund manager and adjusted accordingly.
Small-Cap FundsA fund manager who has experience in the analysis of small-cap stocks is required to invest in these stocks. These companies can fluctuate rapidly and often fall or rise quickly within days. The fund manager must be in tune with the market at all times.


Who should invest?
Large Cap FundsThese schemes are preferred by investors who have a lower tolerance for risk and seek investment opportunities in equity markets. It is important to have a long-term vision of your investment goals. It is also suitable for investors who do not seek aggressive returns.
Mid Cap FundsThese schemes are best suited for investors who can tolerate moderate risk and want to be exposed to the equity markets. A long-term investment plan is required and you should be comfortable with returns of around 10%
Small-Cap FundsThese schemes are designed for investors who can tolerate higher levels of risk. These schemes are suitable for investors who can tolerate volatility in the small-cap space. You can expect long-term returns. Before investing in small-cap funds, you should thoroughly research the manager.



As you can see, there are large-cap, small-cap, and mid-cap funds that meet different investor needs. Make sure you fully understand your investment goals and create a financial plan before investing.

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