Difference Between Large Cap, Mid Cap, and Small Cap Funds

• Mutual funds can be classified based on their market capitalisation into small cap, mid cap, and large cap among others.
• Market capitalisation is commonly referred to as market cap, which is calculated by multiplying a company’s outstanding shares by its stock price per share.
• Understanding small cap vs mid cap vs large cap i.e. the differences helps in making informed investment decisions.

Mutual funds have the potential to generate inflation-adjusted returns and contribute to your wealth-building journey. Interestingly, there are several kinds of mutual funds with distinct features that can help you achieve your unique financial goals.One such categorisation of mutual funds is based on market capitalisation and includes small cap, mid cap, and large cap. In this blog, you'll learn more about these categories and explore small cap vs mid cap vs large cap i.e. the key features that make them different from each other.Let’s start!

You can’t gauge much about a company’s value or size through its stock price alone. This is where market capitalisation is useful. Market capitalisation, commonly known as market cap, is calculated by multiplying a company’s outstanding shares by its stock price per share.Different companies are classified based on their market cap into small cap, mid cap, and large cap. You can get the list of these companies on the AMFI website

Example

Let’s assume the stock price of Company A is ₹500 and it has 10 million shares outstanding. Meanwhile, Company B has a stock price of ₹250 with 50 million outstanding sharesThe market cap of Company A is ₹5 billion (₹500 X 10 million shares) and that of Company B is ₹12.5 billion (₹250 X 50 million shares)Thus, though the stock price of Company A (₹500) is higher than Company B (₹250), Company B (₹12.5 billion) is larger than Company A (₹5 billion).

Small cap companies are ranked 251st onwards in terms of market cap. They are young companies, typically with a high growth potential. Their stocks are comparatively more volatile, and hence, riskier than mid cap and large cap stocksMutual funds primarily investing in small cap companies are known as small cap mutual funds.

Mid cap companies are ranked from 101 to 250 in terms of market cap and are considered to be developing companies. Their stocks hold more growth potential than large caps but are comparatively riskierOn the contrary, they are less risky than small caps. Mid cap mutual funds largely invest in such companies

Large cap companies are the top 100 companies in terms of market capitalisation. These companies are generally stable, and their stocks are comparatively less volatileMutual funds that invest a large portion of their corpus in these companies are called large cap mutual funds.

While the definitions make the basic difference between small cap, mid cap, and large cap clear, let’s understand the difference across specific parameters:

If you are an aggressive investor with a high-risk appetite, you can consider small cap mutual funds. On the other hand, if you have a conservative investing style, then large cap mutual funds may be a better option. In case you have a moderate risk tolerance, you may invest in mid cap mutual funds.It is advisable to seek professional guidance before you invest in mutual funds to ensure your investments align with your financial needs.

The classification of mutual funds based on the market cap helps you identify a suitable investment avenue based on your risk tolerance and return expectations. In addition to market cap, there are several other types of mutual funds, making them an ideal choice for your unique financial needs.Aditya Birla Capital offers a range of mutual funds to help you generate optimal returns and regular income. Create a portfolio of hand-picked mutual funds and secure your future today! Also Read: Types of Mutual Funds that a Beginner Should Know About