Differences between Large Cap, Mid Cap and Small Cap Funds

Market Capitailization

Large-cap funds mainly invest in companies with a market capitalization of over 20,000 Cr and ranked between 1st to 100th  based on market capitalization. Midcap funds mainly have invest in companies with a market capitalization between   Rs. 5000cr.and Rs.20,000cr. and ranks between 101st and 250th based on market capitalization. Small cap  funds mainly invest in companies with a market capitalization of less than Rs 5000 cr and ranked lower than 250th based on market capitalization. 

Asset Allocation

Large cap funds invest a minimum of 80% of their portfolio assets in equity and equity-related instruments of large cap companies. Mid cap funds invest a minimum of 65% of their portfolio assets in equity and equity-related instruments of mid cap companies. Small cap funds invest a minimum of 65% of their portfolio assets in equity and equity-related instruments of small cap companies. 

Risk Profile

Large cap funds invest in large cap companies with a high reputation and excellent track record in the stock market. They also have a large market share and consistent performance. This makes it less risky than medium- and small-cap stocks. The MID cap fund invests in a medium company below a small cap company, but a lower risk than a major mace company. Many investors are investing in growth companies leading to return volatility. Small Cap Funds invest in small cap companies in three dangerous companies. They have a low-resource base, but provide great growth potential. Therefore, market price volatility increases and investor risk increases.

Returns

Large cap funds provide stable and steady returns with low volatility. Mid cap funds can offer higher returns than large cap funds as the growth potential is more. Small funds can offer higher returns than large and medium sized funds. However, because the company is small, the fluctuations are large.

Growth

Large-cap funds have the potential to grow more slowly than mid- and small-cap funds. This is because large-cap funds invest in companies with high, stable market capitalization. Mid-cap funds have better growth potential because of the opportunity for mid-caps to become the next large-cap emerging. Small-cap funds have the potential to grow exponentially compared to large- and mid-cap funds. This is because small-cap companies have lower stock prices. Therefore, a small-scale company will likely become larger in the future.

Liquidity and Volatility

Large-cap companies have high liquidity because their shares are actively traded in high volume on stock exchanges. Furthermore, large-cap companies are leading the market. Investors are already familiar with them, so choose large-cap funds for easy liquidity. For example, large cap companies like NIFTY 50 companies like Reliance, TCS etc. Mid-cap companies have less liquidity because they have less demand due to market risk. Investors with a longer investment horizon prefer to choose mid-cap funds due to their low liquidity. For example, mid cap companies like Biocon, Tata Global Beverage, etc. Small-cap companies have the lowest liquidity compared to mid- and large-cap stocks. In general, they have very low trading volume among all. Investors with the ability to invest even longer will choose small-cap funds because companies are in their early stages and need time to grow. For example, small cap companies like India Cements, Persently Systems, etc.