Small-Cap vs. Mid cap vs. Large Cap Mutual funds

Mutual funds don’t put you under any restrictions – by that – there is so much you get to choose from when it comes to mutual funds. Mutual funds are so much more flexible, which is suitable to rookie investors and the pros of the field. Here we will talk about market cap mutual funds – it is only right to step into the mutual fund environment when you are all about it, along with all of the different types of funds you can invest in. 

So – let’s move on to know more about market cap mutual funds.

What are Market Cap Mutual Funds?

Mutual funds look forward to aligning strategies with specific market segments that are outlined for investors in the fund’s prospectus. The popular funds concentrate on the income sector or market capitalization.

Capitalization funds operate well with targeted holding periods, as long-term market behavior tends to track specific capitalization levels – whether that is large-cap, mid-cap, or small-cap mutual funds.

Market cap has aligned with annual performance in a logical manner. 

Here are the tiers of market cap, and you might want to look at them in-depth.

What are Small-Cap Mutual Funds?

The term cap in small-cap stocks means a company’s capitalization as determined by the total market value of its publicly traded funds. A small-cap mutual fund is generally defined as the stock of publicly traded companies that have a market capitalization ranging less than five thousand crores. In the technical explanation, as underlying companies are young and look forward to expanding aggressively, they are more volatile and vulnerable to losses in downtime in the market.

In a small-cap of the fund, the fund manager invests a minimum of 65% of the portfolio in small-cap funds.

Small-cap funds give individual investors an edge over institutional investors. It is because institutional investors prefer to buy large-cap stocks because of their stability, while the investor hopes for aggressive returns would invest in these funds. 

Furthermore, the fund composition plays a vital role, and an impulsive decision will endanger your investment.

What are Mid-Cap Funds?

Mid-Cap companies are the ones that cover 80% to 90% of the whole market cap of all the listed companies. Mid-Cap companies have a market capitalization of 500 to 10,000 crores. You could find mid-cap companies in the BSE Midcap index. Midcap funds invest only in mid-cap firms with the newer guidelines by SEBI on the categorization of mutual fund schemes. The midcap segment is defined by the stocks that have been ranked from 101 to 250 by market capitalization.

The value of the 100th stock in terms of market capitalization is worth 30,0000 crores. The stock of 250th rank has a value of 9,500 crores.

What are Large Cap Funds?

Large-cap funds are funds that invest in a major proportion of their assets under management in the equity shares of firms with a large market capitalization. The companies that fall under this specific bracket are known to have the highest reputation in the market. Through the best of the large-cap funds, you can be assured that you invest in companies that have a great track record of performing well for the medium to the long term horizon.

Who Should Invest in Small Cap Funds?

In order to know if small-cap funds are for you, you need to weigh the following features with your financial goals.

  1. Small-cap funds have the potential to grow and also the possibility of giving high returns to the investors, sometimes even as high as a 100% of returns. They give you the opportunity of generating wealth – this makes it the most attractive feature of all.
  2. They are highly volatile and can dwindle easily in the bear market. They also have lower revenue streams. 
  3. These funds could be afforded easily. They have a smaller size of capital and outstanding shares in the market. Their stock value is underpriced. When an investor picks up a quality stock at a low price and invests in them, they have the advantage of beating conventional investors.
  4. They carry along with low liquidity with them. The small-cap stocks are the least liquid when compared to the others. As they are not that popular, they could not be easily bought and sold.

So, if you are someone who is down for all of the above-mentioned points, small-cap stocks are for you.

Who Should Invest in Mid-Cap Funds?

Every investor has a different goal. Are you ready to know if the mid-cap funds come under your hat? Here we go:

  1. Mid-cap companies have the traits of larger and smaller companies. This also results in their favorable risk and return facet. A midcap company will have the potential to perform competitively in market conditions.
  2. Mid-cap companies are for the long-termers. They will give you better returns when invested for a longer period. So, it would be the better option when you want to build wealth in the long run.
  3. Midcap funds possess higher risks than large-cap companies, but it is quite easy these days to review the market with advanced electronic media.
  4. Quality management is a unique feature of good mid-cap companies, and it determines the growth of the company with crucial business decisions. Such management skills enable smooth functioning of the company and reflect in the fund’s performance.

So, if you have a risk appetite, you can always invest in Midcap funds, but make sure they align with your financial goals.

Who Should Invest in Large Cap Funds?

Read the following points to know if large-cap funds are your cup of tea:

  1. Large-cap funds give you stability. Large-cap companies have a well-established need in the market, something that they built over the years. That doesn’t mean they would be immune to volatile market conditions. 
  2. Large-cap funds invest in companies that have a great reputation through years and years of unbeaten business runs, with access to information like the fund’s current size, historical performance, the current net asset value, and much more. You would be able to analyze any AMCs large-cap fund, and you can get perspectives about the large-cap fund, and it would help to make the right decisions.
  3. Large-cap companies need to be well organized because of so many factors, which means they need industry leaders to possess years of experience and a management team of the highest reputation. This factor would increase the strength of the company and its quality.
  4. A company that has already been well-established would have a lesser scope of giving faster growth rates. This means the rates that you get from here are stable and will benefit you in the long run.

Well, now you know what all the three tiers have to offer to you, and you could make a good decision based on all of these factors to have a fruitful investment journey.


Choosing one option from the three to invest in is not that hard; all of the three categories have their pros and cons, just like the two sides of every coin. You would have to make the right decision only by aligning them with your financial goals.

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