- Market capitalisation To simply put, market capitalisation refers to the aggregate valuation of a firm based on its current share price multiplied with the number of outstanding shares. Outstanding shares refer to the shares that can be bought and sold in public markets.
- Risk and return As an investor, it’s essential for you to have a clear understanding of the risk and return equation while investing in stocks. As compared to small caps, mid cap stocks are less risky. At the same time, their returns are potentially lower than small caps.
- Available information in public domain Information about mid cap firms is easily available in the public domain. This is because since these firms are on the growth trajectory, any development from their side is widely covered in the media. Thus, it becomes easy for you, the investor, to know about the company’s credentials, performance, leadership, etc.
Market capitalisation = Share price x Number of outstanding shares
So, for example, if a company has 500 outstanding shares with a share price of Rs. 100, it’s market capitalisation is Rs. 50,000. In India, mid cap stocks belong to firms whose market capitalisation is between Rs. 5,000 to Rs. 20,000 crores. On the other hand, small cap stocks belong to companies with a market capitalisation less than Rs. 5,000 crores.
On the other hand, small caps are riskier than mid cap stocks since the latter has a more aggressive investment style. However, their chances of generating returns are greater compared to mid caps.
However, small caps are generally start-ups, which have just commenced business. Therefore, not much information is available about these firms. This is what contributes to their risk factor. Hence, it’s advisable to conduct in-depth research about the parent firm, as much as possible, prior to investing in a small cap stock.
Investing in mid cap and small caps not only offers diversification, but also gives you a chance to earn higher returns on your investment. Having said that, it’s essential to adopt due diligence and research thoroughly about the parent company. At the same time, it’s important to analyse returns over the long term and choose a stock that has performed consistently across market cycles.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
How to save on gift tax in India?
You need to pay taxes on gifts which exceed the limits set by the Government. However, gifts of any amount received or given from relatives including parents and spouse are tax-free.
6 Factors for Rising Health Insurance Premiums
While the demand for health insurance policies has certainly increased, there has also been a rise in the premium costs. Read this post to know the top factors that lead to an increase in the premiums of health insurance.
What are the Trading Hours for World's Major Stock Exchanges?
A stock exchange is a marketplace where the shares of companies are sold and purchased throughout the day during the ‘trading hours’
5 Types of Business Loan For Woman Entrepreneurs
There are now many different types of loans options in India for women wanting to explore their entrepreneurial dreams. Read this post to know 5 of the most popular options.