Context:
After a period of underperformance, largecap funds are seeing a resurgence. They have outperformed smallcap funds in the two-year Systematic Investment Plan (SIP) returns chart. SIP investments in largecap funds have generated an average annualized return of 11.3% over the past two years. In comparison, smallcap funds have provided 7.2% annualized returns.
Midcap Funds
- Midcap Funds’ Position: Midcap funds continue to outperform largecap funds with a 12.6% annualized return over the two-year period.
What Is The Difference Between Large Cap, Mid Cap, And Small Cap Funds?
Mutual funds are among the most effective investment options for wealth creation, especially for beginners. One of the key ways mutual funds are classified is based on market capitalization—the total market value of a company’s outstanding shares.
What is Market Capitalization?
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Market capitalization (or market cap) is the total value of a company’s outstanding shares, calculated as:
Market Cap = Current Market Price per Share × Total Number of Outstanding Shares
Based on this value, SEBI categorizes companies into three main types:
Large-cap Companies
- Definition: Top 100 companies by market cap
- Market Cap Range: ₹20,000 crore and above
- Mutual Fund Type: Large-cap funds
- Characteristics:
- Stable returns
- Lower risk
- High liquidity
- Typically includes blue-chip stocks (e.g., Nifty 50 companies)
Mid-cap Companies
- Definition: Ranked 101st to 250th by market cap
- Market Cap Range: ₹5,000 crore to ₹20,000 crore
- Mutual Fund Type: Mid-cap funds
- Characteristics:
- Moderate risk and volatility
- Potential for higher returns than large-caps
- Medium liquidity
- Suitable for medium-term investment goals
Small-cap Companies
- Definition: Ranked 251st and beyond
- Market Cap Range: Below ₹5,000 crore
- Mutual Fund Type: Small-cap funds
- Characteristics:
- Highest risk due to limited track record
- High volatility
- Low liquidity
- Strong growth potential for long-term investors
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Large-cap vs Mid-cap vs Small-cap Funds
| Factor | Large-cap Funds | Mid-cap Funds | Small-cap Funds |
|---|---|---|---|
| Risk Profile | Low | Moderate | High |
| Volatility | Low | Medium | High |
| Liquidity | High | Medium | Low |
| Average 5-Year Return | ~7% | ~10.28% | ~14.74% |
| Investment Horizon | Short to medium-term | Medium to long-term | Long-term only |
| Ideal For | Conservative investors | Balanced investors | Aggressive investors with high-risk tolerance |
