What are mid and small cap mutual funds

The market capitalization of stocks is one of the best ways to categorize different schemes of mutual funds. Many new mutual fund investors get confused to choose suitable schemes to invest their money. They doubt which one is a better investment, equity funds, or debt funds. Both schemes are ideal for potential returns, but understanding more about each scheme makes you a better mutual fund investor. In this post, we can check what mid-cap and small-cap mutual funds are. In this post, we can check what mid-cap and small-cap mutual funds are.

Market capitalization

Before explaining both mid-cap and small-cap funds, you must have an understanding of what market capitalization is. Market capitalization means the market value of outstanding shares of a company. In fact, market capitalization is considered as an indicator of the size of a company. It is measured by multiplying the stock price with outstanding shares. That means,

Market capitalization =Market price of each share x No. of common outstanding shares

Companies are categorized into three types based on market capitalization,

Large-cap companies: Companies with a market cap between Rs. 10 billion and Rs. 200 billion and their stocks considered to be secure and stable.

Mid-cap companies: These are medium-sized companies considered to be more volatile than large-cap companies and have a market cap between Rs.2 billion and Rs. 10 billion.

Small-cap companies:  These are relatively young companies with market capitalizations between Rs. 300 million to Rs. 2 billion. Even if they offer great capital appreciation, it comes under the high-risk category.

Mid and small cap funds

As an investor, you can find a wide array of mutual funds to choose from. There are different types of fund schemes like large-cap, mid-cap, and small-cap funds to invest and to make a diversified portfolio. Equity funds are a good investment choice for those who prefer to invest in mutual funds. Large caps, mid-caps, and small caps are equity funds ideal for making good returns. Let’s check what mid-cap and small-cap funds are.

Mid-cap funds

Mid-cap funds are those that mainly invest in mid-cap entities with a market capitalization ranging between Rs.50 billion and Rs.200 billion. These stocks lie between large-cap and small-cap stocks. And these stocks can outshine their counterparts of large-cap funds during a bull market. The reason is that these companies are always seeking for right growth opportunities to expand.

The underlying stocks of small-cap funds are more volatile than large-cap funds. If you have high-risk tolerance than those who invest in large-cap funds, then mid-cap funds are suitable for you. But you can expect high capital appreciation even if it has high risk. Fund managers try to generate better returns for their mid-cap investors through diversification across different sectors, excellent stock selection, and fine market timing.

Small-cap funds

Since the underlying companies of small-cap mutual funds are young and regularly seek opportunities to expand, these funds have high growth potential. The market capitalization of these funds is less than Rs.500 crores, which are very less than those of large-cap and mid-cap funds. Even if most of these small-cap firms have high growth potential, high risks are involved with them.

Small-cap funds are more vulnerable to an economic or business downturn making it more volatile than both mid-cap and large-cap funds. Choose small-cap funds if you are ready to take great risks, but at the same time, looking for exceptional growth.

A comparison between Mid-cap funds and small-cap funds

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh