Mutual Fund Investment: Small, Mid And Large Cap, Which One Gives More Returns? – News18
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Market capitalisation is the total market value of a company’s outstanding shares.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully before investing. (Representative image)
When it comes to investing in mutual funds, one size does not fit all. The market offers a wide range of funds categorised by the size of the companies they invest in, known as small-cap, mid-cap, and large-cap funds. These categories reflect the market capitalisation of the companies, a measure of their size and market value. Each of these fund types presents unique opportunities and challenges, leaving investors often wondering, “Which category can deliver the best returns?”
The potential returns from small-cap, mid-cap, or large-cap mutual funds depend on market conditions, economic cycles, the fund manager’s strategy, and your investment horizon. Let’s dive deeper to explore the potential returns, risks, and suitability of small, mid, and large-cap funds for your portfolio.
However, readers must note that mutual fund investments are subject to market risks, and past performance does not guarantee returns. Reading all scheme-related documents carefully before investing is crucial.
What Is Market Capitalisation?
Market Capitalisation: It is the total market value of a company’s outstanding shares, calculated as:
Market Cap = Current Share Price × Total Number of Shares Outstanding
Companies are classified into small-cap, mid-cap, or large-cap based on their m-cap. This classification determines the type of mutual funds investing in these companies.
Here’s a quick breakdown of the m-cap ranges for these categories:
- Small-Cap Funds: Invest in companies ranked 251st and below in terms of market capitalisation, typically with an M-cap of less than Rs 5,000 crore.
- Mid-Cap Funds: Invest in companies ranked 101st to 250th, with an m-cap generally between Rs 5,000 crore and Rs 20,000 crore.
- Large-Cap Funds: Focus on the top 100 companies, which have an m-cap exceeding Rs 20,000 crore, often representing the most stable and well-established businesses.
1. Small-Cap Funds
Potential Returns: High growth potential, as these companies are often in the early stages of growth or operate in niche markets. They tend to outperform in a bull market or when the economy is booming.
Risk: High risk due to volatility and limited stability. Small-cap funds can experience sharp declines during economic downturns.
Best Suited For: Investors with a high-risk appetite and a long-term horizon (7–10+ years).
2. Mid-Cap Funds
Potential Returns: Moderate to high returns, often serving as a balance between the growth potential of small-caps and the stability of large-caps.
Risk: Moderate risk, with less volatility than small-caps but more sensitivity to market fluctuations compared to large-caps.
Best Suited For: Investors with a moderate-risk appetite and a medium- to long-term horizon (5–10 years).
3. Large-Cap Funds
Potential Returns: Relatively stable and consistent but lower compared to small- or mid-caps during a bull market. They help preserve capital during market downturns.
Risk: Lower risk as these companies are well-established and less volatile.
Best Suited For: Investors with a low-risk appetite or those nearing financial goals who prioritise stability over high returns.
Which Gives More Returns?
- Small-cap funds tend to outperform in bull markets due to their growth potential, offering high returns over the long term, but with higher volatility.
- Mid-cap funds strike a balance between growth and risk, delivering moderate to high returns consistently.
- Large-cap funds offer stable returns with lower risk, making them ideal for conservative investors or during economic downturns.
Key Takeaway
Each category offers unique opportunities depending on your financial goals, risk tolerance, and investment horizon. While small-cap funds carry the potential for explosive growth with higher risk, large-cap funds prioritise stability and steady returns. Mid-cap funds offer a middle ground, balancing risk and reward.
Before making any investment, assess your risk tolerance and consult with a financial advisor if needed. Investments in mutual funds are subject to factors such as market volatility, economic changes, and fund manager decisions. Choose schemes that align with your financial goals and investment horizon. The value of investments may fluctuate, and investors may not get back the full amount invested.
Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Readers are advised to check with certified experts before making any investment decisions.
