What are Large-Cap Mid-Cap & Small-Cap Mutual Funds? – Which type will work best for you?

what is large cap fund, what is mid cap fund, what is small cap fund

While mutual funds have simplified the investment game for retail investors, with more than 29 types of mutual fund categories, deciding which mutual fund to invest in is no piece of cake. 

Equity mutual fund investors face a special dilemma understanding the difference between large-cap, mid-cap and small-cap mutual funds and deciding which mutual fund category will best suit their investment objective. 

So, today we will understand what are large-cap mid-cap and small-cap mutual funds, how to select the best mutual fund category for your investment needs and also reveal how you can get access to the best large-cap mid-cap and small-cap mutual funds in India for 2021. 

So, let’s begin!

What does ‘cap’ mean?

The cap in large-cap, mid-cap and small-cap refers to “Market Capitalisation. Market capitalisation is the total market value of a company’s outstanding shares.  Market capitalisation indicates the size of the company. 

What are the types of market capitalisation? 

To ensure uniformity, SEBI (stock market regulator) has classified companies based on market capitalisation as: 

  • Large-cap companies: 1-100 companies
  • Mid-cap companies: 101-250th companies 
  • Small-cap companies: 251st company onwards

While market capitalisation keeps on fluctuating, here is the list of all the companies listed in India, from highest to lowest market capitalisation by AMFI.

What is the definition of Large-cap, mid-cap and small-cap mutual funds in India as per SEBI

1. Large Cap Mutual Funds

Large cap funds are those funds which invest a larger proportion of their corpus in companies with huge market capitalization.

These companies are trustworthy, reputable and strong and are often used to describe a large-cap companies. These are the well-established players with a proven track record. 

Such companies typically have strong corporate practices, and have created consistent profits and wealth for their investors slowly and steadily over the long term. 

The Mutual funds that invest a majority of their investible corpus in these companies are labeled as large-cap funds.​​

SEBI defines large-cap mutual funds as: “equity-oriented open-ended mutual funds with a minimum 80% of the corpus in equity (stocks) of large-cap (1st 100) companies. 

Large-cap mutual funds provide stable returns as they are invested in stocks of bluechip companies like Reliance Industries, Tata Consultancy Services, HDFC Bank Ltd. etc. 

2. Mid-cap mutual funds

Mid-caps are those companies that lie between large-caps and small-caps in terms of size of the company. The Mid-caps stocks are more volatile than large-caps counterparts and hence may have quick price movements. Mutual funds that mainly invest in mid-cap companies are labeled mid-cap funds. 

Mid cap mutual funds are equity-oriented open-ended mutual funds with a minimum 65% of the corpus in stocks of mid-cap (101st -250th) companies. Mid-cap companies carry high risk but provide higher returns than large-cap companies. 

Examples of mid-cap companies include ACC Limited, Page Industries, Voltas Ltd, Pfizer Ltd etc. 

3. Small Cap Funds

Small-cap companies typically have the highest growth potential and are very volatile. This is because these companies are constantly looking for growth opportunities and seek to expand aggressively. Many investors who are keen to invest in the small-caps may not have the time to research and might be willing to take high risk appetite to invest in small caps. 

Small-cap mutual funds are equity-oriented open-ended mutual funds with a minimum 65% of the corpus in stocks of small-cap (251st onwards) companies. Small-cap companies are extremely risky. Sheela Foam Ltd, Avanti Feeds Ltd, Finolex Industries Ltd etc are some of the small-cap companies in India. 

What is the difference between large-cap mid-cap and small-cap mutual funds

Here are the key differences between large-cap mid-cap and small-cap mutual funds

Parameters Large-cap Mutual Funds Mid-cap Mutual Funds Small-cap Mutual Funds
Meaning Large caps are trustworthy, reputable and strong companies with well-established players with a proven track record.   Mid-caps are those companies that lie between large-caps and small-caps in terms of size of the company. 

The Mid-caps stocks are more volatile than large-caps counterparts and hence may have quick price movements.

Small-cap companies typically have the highest growth potential and are very volatile. This is because these companies are constantly looking for growth opportunities and seek to expand aggressively. 
Market Capitalisation 1st 100 companies 101 – 250th companies 251st company onwards
Risk Profile Low Medium-High Very High
Investor Profile Conservative Moderately Aggressive Highly Aggressive

Which is better – Large-cap Mid-cap or Small-cap mutual funds

Choosing between large-cap mid-cap and small-cap mutual funds totally depends on your: 

  • Risk Profile &
  • Time Horizon
Risk Profile  Time Horizon Type of Mutual Fund
Conservative Short-term Large-cap mutual fund
Moderately Aggressive Short-term A mix of large-cap and mid-cap mutual funds
Moderately Aggressive Long-term Mid-cap mutual funds
Aggressive  Short-term Mid-cap mutual funds
Aggressive  Long-term Small-cap mutual funds

Final Thoughts

Whether you invest in stocks, bonds, mutual funds, bank FDs or any other investment option, you must recognise your risk-profile and time to goal i.e. perform goal-based financial planning

Once you understand your risk profile, then you can decide to invest in either of large-cap, mid-cap and small-cap mutual funds

Alternately, if you are a conservative investor but are willing to take a small exposure i.e. 20%-30% in mid-cap companies, then you can also invest in large & mid-cap mutual funds. 

Similarly, if you are not sure of your risk profile but have a long-term time horizon then you can also invest in multi-cap mutual funds wherein the fund manager dynamically invests across large-mid-small-cap companies as per his research and expertise. 

But with more than 1000+ mutual schemes in India across large-cap, mid-cap and small-cap segments, it is almost impossible for a naive investor to discover and invest in the best mutual fund.

To make this possible, Samco’s expert mutual fund research platform, RankMF has shortlisted the best large-cap, mid-cap and small-cap mutual funds in India after evaluating all the mutual fund schemes in India on more than 2 million parameters! 

To invest in the best large-cap, mid-cap and small-cap mutual funds in India, open a Samco Demat account today and get FREE access to RankMF – The best mutual fund research and investment platform in India! 

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