Large Cap, Mid Cap and Small Cap Funds: What’s the Difference? 

Caption: Learn the difference between large-cap, mid-cap and small-cap mutual funds 

The most prominent indices, such as NIFTY 50 and S&P BSE Sensex, rank companies according to their market capitalisation. To calculate a company’s market cap, you need to multiply its current market price by the total number of its outstanding shares. Securities and Exchange Board of India (SEBI), via its circular on the rationalisation of mutual funds, divides all companies into three categories – large-cap, mid-cap and small-cap. 

In this regard, mutual funds which invest in companies based on their market capitalisation are called large, mid and small-cap funds. Continue reading to learn the difference between these funds.

What Is a Large Cap Fund?

Large-cap funds are mutual funds that invest in the top 100 companies based on market cap. 

As per SEBI’s guidelines, large-cap funds have to invest 80% of their assets into such companies. Large-cap companies offer stability in a volatile market and tend to generate a stable return in the long run. 

However, the growth of these companies tends to be slow  as they are relatively well-established. Hence, large-cap funds usually do not offer aggressive returns.  

List of Top Large Cap Funds to Invest in India

Here are some of the top large cap funds that you can invest in 2022:

*Returns data valid as of November 16, 2022. 

What Is a Mid Cap Fund?

Mid-cap mutual funds invest in mid-cap companies that rank from 101 to 250 based on market cap. These funds should  invest at least 65% of their assets in such companies. 

Although mid-cap companies are riskier than large-cap companies, they carry relatively lower risks than small-cap companies. As mid-cap companies have room for growth and development, they have higher growth potential than large-cap companies.

List of Top Mid Cap Funds to Invest in India

Here are some of the best mid cap funds to invest in 2022:

*Returns data valid as of November 16, 2022. 

What Is a Small Cap Fund?

Small-cap funds are mutual funds that primarily invest in small-cap companies. According to SEBI, these funds should invest a minimum of 65% of their assets in companies that rank 251 onwards based on market cap.

Small-cap companies tend to be riskier than large-cap and mid-cap companies, as they are comparatively new to the market and have fewer assets under management. Hence, they possess higher risk. 

However, these companies also have higher growth potential than large-cap and mid-cap companies. Therefore, it has the potential to generate better returns. 

List of Top Small Cap Funds to Invest in India

Here are some of the best small cap funds that you can invest in  :

*Returns data valid as on November 16, 2022. 

What Are the Differences Between Large Cap, Mid Cap and Small Cap Funds?

These funds have different objectives based on their asset allocations. The primary differences between large, mid, and small-cap funds are discussed below.

Who Should Invest in Large Cap, Mid Cap and Small Cap Funds?

Now that we have discussed the differences between the three types of funds is clear, let’s understand the fund that might suit you the best:  

• Large-cap funds

Investors having a low-risk appetite and long-term investment horizon can consider investing in these funds. It is also ideal for investors who wish to diversify their portfolios to balance the risk ratio.

• Mid-cap funds

Investors who want to take moderate risks but expect a higher return during a medium to long investment tenure can consider investing in such funds. They can also prove to be good portfolio diversifiers.

• Small-cap funds

Active investors having a high-risk appetite and wanting to earn a maximum return through significant investment can invest in funds of this category.

Final Thoughts

Large, mid, and small-cap funds have different characteristics in terms of  their risk factor, investment objective, growth prospect, etc. Investors should check whether the nature of the underlying assets of these funds aligns with their investment objectives before going ahead with any decision.  

Frequently Asked Questions (FAQs)

Q1. What is the formula to calculate market capitalisation of a company?

Ans. The formula to calculate a company’s market capitalisation is the total number of outstanding shares multiplied by the price per share. For example, if the total outstanding shares of a company is 20,000 and the cost per share is ₹100, the company’s market capitalisation would be 20,000 x ₹100 = ₹20,00,000.

Q2. What is a Bluechip fund?

Ans. The bluechip fund is another term used for large-cap funds. Blue Chip companies are the ones with good reputations and solid market capitalisations. These companies are considered reliable and stable investment options. Usually, the stocks of the highest-ranking companies based on the market cap are blue chip companies.

Q3. What are the capitalisation-based indices in the Indian Stock Market?

Ans. Some indices that rank the large-cap companies in India are SENSEX, NIFTY 50, NIFTY 100 and NIFTY Next 50. On the other hand, NIFTY Mid-Cap and NIFTY Mid-Cap 150 focus on mid cap companies. Similarly, small-cap companies get ranked in NIFTY Small-Cap and NIFTY Small-Cap 250. NIFTY 500 is one such index that comprises large-cap, mid-cap and small-cap stocks.

Q4. What do you mean by the risk appetite of an investor? 

Ans. The risk appetite is the level of risk you are willing to take to achieve your desired return goals. Investors with a high-risk appetite tend to go for risky investment avenues to generate high returns quickly.