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- Key Highlights
- What is Market Capitalisation?
- What are Small Cap Companies?
- What are Mid Cap Companies?
- What are Large Cap Companies?
- What is the Difference Between Small Cap, Mid Cap, and Large Cap?
- Where Should You Invest - Small Cap, Mid Cap or Large Cap?
- Invest in Small Cap, Mid Cap or Large Cap to Save for Your Future
- FAQS - FREQUENTLY ASKED QUESTIONS
Key Highlights
- 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!
What is Market Capitalisation?
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).
What are Small Cap Companies?
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.
What are Mid Cap Companies?
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
What are Large Cap 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.
What is the Difference Between Small Cap, Mid Cap, and Large Cap?
While the definitions make the basic difference between small cap, mid cap, and large cap clear, let’s understand the difference across specific parameters:
| Small Cap Vs Mid Cap Vs Large Cap: Investment Composition | ||
| Small Cap Mutual Fund | Mid Cap Mutual Fund | Large Cap Mutual Fund |
| Invests at least 65% in small cap stocks. | Invests at least 65% in mid cap stocks. | Invests at least 80% in large cap stocks. |
| Small Cap Vs Mid Cap Vs Large Cap: Volatility | ||
| Small Cap Mutual Fund | Mid Cap Mutual Fund | Large Cap Mutual Fund |
| Small cap mutual funds are more volatile. | Mid cap mutual funds have moderate volatility. | Large cap mutual funds are generally less volatile. |
| Small Cap Vs Mid Cap Vs Large Cap: Risk | ||
| Small Cap Mutual Fund | Mid Cap Mutual Fund | Large Cap Mutual Fund |
| Riskier than mid cap and large cap mutual funds. | More risky than large cap but less risky than small cap mutual funds. | Less risky than mid cap and small cap mutual funds. |
| Small Cap Vs Mid Cap Vs Large Cap: Return Potential | ||
| Small Cap Mutual Fund | Mid Cap Mutual Fund | Large Cap Mutual Fund |
| Since small cap stocks normally have a significant growth potential, the returns are generally higher. | Mid cap mutual funds can typically offer more returns than large cap mutual funds. | Large cap mutual funds usually offer stable returns. |
Where Should You Invest - Small Cap, Mid Cap or Large Cap?
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.
Invest in Small Cap, Mid Cap or Large Cap to Save for Your Future
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
FAQS - FREQUENTLY ASKED QUESTIONS
How are mutual funds classified based on market cap?
Mutual funds are classified based on market cap into small cap, mid cap, large cap, etc. Small cap mutual funds invest primarily in small cap stocks. Likewise, mid cap and large cap mutual funds invest largely invest in mid cap and large cap stocks.
How is the market cap calculated?
Market cap is calculated by multiplying a company’s outstanding shares by its stock price per share.
What is small cap vs mid cap vs large cap i.e. the difference between them?
Small cap vs mid cap vs large cap is based on various parameters i.e. these funds differ in terms of investment composition, volatility, risk profile, and return potential.
Can you explain small cap vs mid cap vs large cap in terms of investment composition?
Small cap and mid cap mutual funds invest at least 65% in small cap and mid cap stocks, respectively. On the other hand, large cap mutual funds invest at least 80% in large cap stocks.
Can you talk about small cap vs mid cap vs large cap in terms of volatility?
Small cap mutual funds are more volatile. On the other hand, mid cap and large cap mutual funds generally have moderate and low volatility, respectively.
Could you elaborate on small cap vs mid cap vs large cap concerning associated risks?
The level of risk associated decreases from small cap to mid cap to large cap mutual funds, in the said order.
Could you highlight small cap vs mid cap vs large cap in terms of return potential?
Risk and return are directly related. Thus, similar to associated risk, the return potential decreases from small cap to mid cap to large cap mutual funds, in the said order.
Why is it important to understand small cap vs mid cap vs large cap i.e. the difference between mutual fund types?
Understanding the difference helps in making informed investment decisions based on your risk tolerance and return expectations.
I follow a conservative investment style. In which fund type should I invest it?
If you have a conservative investing style, then large cap mutual funds may be a better option.
I am an aggressive investor with a high risk tolerance. Which fund type should I opt for?
If you are an aggressive investor with a high-risk tolerance, you can consider small cap mutual funds.
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.
