Small Cap vs Mid Cap vs Large Cap Funds: Which is Best?
Are you ready to take the first step towards investing? If yes, understanding the key difference between Small Cap vs Mid Cap vs Large Cap Funds will come in handy. Why? Let's find out.
The first thing to note when investing in Mutual Funds is each type of market cap offers a unique set of advantages customized to your goals and risk capacity.
This guide simplifies an in-depth analysis of the difference between large, mid cap and small cap.
Now, without any further delay, let's answer the basic query that pops up every time you search the term "market cap."
What is Market Capitalization?
In simple words, the market capitalization (or market cap) is the total value of a company’s shares in the stock market. It helps people understand how big or small a company is. The market capitalisation or market cap is calculated by multiplying the number of shares the company has by the current price of each share.
Here is the formula for calculating market capitalization:
Market Capitalization = Number of Shares × Price per Share
For example, if a company has 100,000 shares and each share costs Rs.10, the market capitalization would be:
Market Cap = 100,000 × Rs.10 = Rs.10,00,000
This means the total value of the companies shares is Rs.10,00,000.
If a question like “What is large cap mid cap and small cap in mutual funds?” pops right into your mind, the next heading will clear off any confusion you might have.
Types of Market Capitalization
The mutual funds invest in varied companies that are divided into three categories based on their market cap:
- Large-cap Companies: These are large and established companies, usually worth Rs.20,000 crores or more. They are well-established and stable businesses.
- Mid-cap Companies: These companies are in the middle and are worth between Rs.5,000 crores to Rs.20,000 crores. They are still growing and have the potential to become large companies.
- Small-cap Companies: These are the smallest companies, usually worth less than Rs.5,000 crores. They can grow a lot, but they can also be riskier to invest in.
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Market Cap SEBI Guidelines
The Securities & Exchange Board of India (SEBI) uses market cap to sort companies into categories:
| Market Cap | Allocation |
|---|---|
| Large Cap Mutual Funds | Companies ranked 1 to 100 by market cap |
| Mid Cap Mutual Funds | Companies ranked 101 to 250 by market cap |
| Small Cap Mutual Funds | Companies ranked after 250 by market cap |
Changes in Market Capitalization
Market capitalization can change because the share price goes up and down. If a company’s share price of NAV (Net Asset Value) goes up, its market cap increases. Likewise, if the price goes down, the market cap decreases. Also, if a company releases more shares to the public, the market cap increases. If it buys back shares, the market cap goes down.
Understanding market capitalization helps people figure out how big a company is and how much it could grow.
Small Cap vs Mid Cap vs Large Cap: Key Differences
The below table draws a comparison between small cap funds, mid cap funds and large cap mutual funds in detail:
| Category | Large Cap | Mid Cap | Small Cap |
|---|---|---|---|
| Risk Profile | Investing in a large cap fund, also known as bluechip stocks, has the lowest risk in comparison to other caps. For example, Nifty 50 stocks. | Investing in mid cap mutual funds carries slightly higher risk than large cap but is less risky than small cap mutual funds. | Investing in small cap funds involves the highest risk among others but also offers high growth potential with higher returns. |
| Liquidity & Volatility | Bluechip stocks have low volatility (changes in stock prices). Plus, these are large, established companies offering good liquidity and stable returns. | Mid cap mutual funds have moderate-low volatility and medium liquidity, allowing flexibility to quickly buy and sell investments. | Small cap mutual funds have high volatility and offer less liquidity than other caps. |
| Consistency of Returns | The average consistency rate of large cap funds is above 12%, delivering 13.77% average returns in the last 5 years. | Mid cap mutual funds have given 15.37% average returns in the last 5 years with a stable consistency rate of 70%, better than large caps. | Even though small cap funds are high-risk schemes, they have the potential to deliver high returns, averaging 16% in the past five years. |
| Growth Potential | Large cap funds are established companies with strong reputations, providing stable returns but having less room for growth. | Mid cap mutual funds offer moderate potential for growth while delivering steady returns to your portfolio. | These are small start-ups or new emerging businesses with high growth potential and the ability to become the next multi-bagger. |
| Suitability (Who Should Invest?) | Large cap mutual funds are the best investment option if you seek long-term returns with minimum risk. If you prefer stability over aggressive growth, this is ideal. | Investors with a long-term horizon of 5+ years and moderate risk tolerance should invest in mid cap mutual funds. To balance risk, SIPs are a good option. | Best suited for aggressive investors looking for short-term gains while accepting high risk for higher rewards. |
How to Diversify Portfolio Small Cap vs Mid Cap vs Large Cap Funds?
To build a well-diversified portfolio, it’s important to mix small cap vs mid cap vs arge cap funds based on your risk level, financial goals and how long you plan to invest. Here is what you can do:
1. Conservative Investors (Low Risk):
- If you prefer less risk, focus on large-cap stocks (70-80% of your portfolio). These are big, stable companies that provide steady returns.
- You can also invest 20-30% in mid-cap stocks for some growth, but they come with a bit more risk.
- Avoid small-cap stocks or only invest a small amount because they are riskier and more unpredictable.
2. Moderate Investors (Medium Risk):
- If you're okay with some risk, aim to have 50-60% of your money in large-cap stocks for stability.
- Put 30-40% in mid cap funds for growth and 10-20% in small cap funds for higher growth potential, even though they come with more ups and downs.
3. Aggressive Investors (High Risk):
- If you are willing to take on more risk for bigger returns, invest 30-40% in large-cap stocks for some safety.
- Put 40-50% in mid-cap stocks for growth opportunities.
- Invest 20-30% in small cap funds that have higher growth potential but are also risky in nature.
Overall, the key is to mix these different types of stocks in a way that matches your risk tolerance and goals.
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Key Takeaways from Comparing Large Cap vs Mid Cap vs Small Cap
Here is a simple breakdown of large cap, mid cap, small cap India, key takeaways:
- Large cap fundsare safer and less risky than small and mid-cap funds.
- Small and mid cap fundshave more potential for growth, but they also come with more risk.
- Large cap fundsare a good choice for people who want less risk and more stability.
- Mid and small cap fundsare better for those who are willing to take on more risk for bigger growth.
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To Conclude the Difference Between Small Cap vs Mid Cap vs Large Cap
In short, making the right choice and understanding the key difference between large cap, mid cap, small cap India is of utmost importance to become a wise investor. Moreover, investing via SIP (Systematic Investment Plan) is an all-time successful strategy that has been proven to lower risk while making more room for high returns in 2025.
Just remember: Pick the right market capitalization that keeps your desired goals and investments aligned, and you are all set for a successful investment plan.
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