What are Large-cap, Mid-cap, and Low-cap Mutual Funds?


Equirus Wealth

05 Dec 2022 5 min read

Mutual Fund#Mutual Funds

While each company is unique, it is possible to use a company's total market value to establish a context for evaluating financial performance and business outlook.

Different Types of Market Cap in Mutual Funds

The total value of all a company's shares of stock is market cap. It enables investors to understand the size of one company compared to another. Market capitalization measures a company's open market value and the market's perception of its prospects, reflecting what investors are willing to pay for its stock.

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What is a Large Cap Fund?

Large-cap Mutual funds are a type of equity in which you can invest funds in a large portion of large market capitalization companies. These are primarily large corporations with large businesses and teams—for instance - Blue chip stocks. These funds have a Market capitalization of Rs. 20,000 crores or more.

According to data released today by the Association of Mutual Funds in India (AMFI), large-cap mutual funds had the highest average net asset under management (AUM) in July.

What are the benefits of investing in large-cap mutual funds?

The following are some advantages of investing in Large Cap Mutual Funds:

  1. Large-cap mutual funds have provided better short-term returns to investors.
  2. They contribute to consistent wealth creation and pay out dividends regularly.
  3. Large-cap fund investments provide consistent and low-risk returns. During a market/business downturn, investors flock to large-cap firms as safer investments.
  4. Large-cap funds can benefit investors who have a low-risk tolerance.
  5. They can withstand a bear market and provide stability.
  6. As large-cap companies have a long history, data/details about them are readily available, making it simple to provide to shareholders and investors.

What are the Factors to Consider when selecting Large-cap mutual funds?

Essential factors to consider when selecting the best large-cap mutual funds:

  1. Large-cap funds' risk/return ratio.
  2. The average rolling returns over the last three years.
  3. The scheme's consistency over the last three years.
  4. The large-cap scheme's asset size.
  5. Long-term investment objectives and the amount to be invested.
  6. Dividend Distribution Tax and Capital Gains Tax.
  7. Understand the meaning of large-cap funds in investment risk, including downside risk.

What is a Mid Cap Fund?

Mid-cap funds make investments in mid-sized businesses. Mid-cap funds invest in stocks of companies that are still in development. These are mid-cap corporations that fall somewhere between large and small-cap stocks. They fall between the two extremes in every important metric, such as company size, client base, revenue, team size, etc. These funds have a market capitalization of Rs. 5,000 crores – Rs. 20,000 crores.

What are the Benefits of Mid Cap Mutual Funds?

The following are some advantages of investing in mid-cap funds:

  1. Mid-cap funds have more significant growth potential than large-cap funds.
  2. They respond faster to market changes and innovations because they are more focused and specialized in their niche.
  3. They frequently outperform large and small-cap funds.

What are the Factors to consider when selecting Mid-cap mutual funds?

Essential factors to consider when selecting the best Mid-cap mutual funds:

  1. Mid-cap mutual fund investors must have higher risk tolerance. Mid-cap mutual funds are volatile and volatile in response to market conditions.
  2. The past performance of any investment is an important consideration when making an investment decision.
  3. When investing in mid-cap mutual funds, it is best to have long-term investment goals, such as child education or early retirement.
  4. Investors should choose a fund with a lower expense ratio because a lower expense ratio mutual fund scheme will provide better returns to investors.

What is a Low Cap Fund?

The capitalization of the company you invest in is an essential factor to consider when deciding what goes into your equity portfolio. Though these funds are riskier and more volatile in the short to medium term than other equity-oriented funds, they offer a higher upside in the long term. These funds have a Market capitalization below Rs. 5,000 crores.

What are the Benefits of Low Cap Mutual Funds?

The following are some advantages of investing in Low Cap Mutual Funds:

  1. Profit from early investments in companies that have the potential to become market leaders.
  2. Ideal for highly aggressive investors with a 7-year or longer investment horizon or plan.
  3. A lack of financial stamina leads to high-risk exposure to withstand challenging market conditions.

What are the Factors to consider when selecting Mid-cap mutual funds?

Essential factors to consider when selecting the best Mid-cap mutual funds:

  1. Investors should scrutinize small-cap funds' performance.
  2. Without the proper knowledge, one can lose all of one's money while speculating and timing the market.

Watch - Benefits of Investing in Mutual Funds

Final Thoughts

A portfolio composed solely of stocks in a single market-cap category may exhibit different reward and risk patterns than a more broadly diversified portfolio. While diversification does not guarantee a profit or eliminate risk on its own, a well-diversified portfolio will have profits in one area that can help compensate for losses in another.

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