What is the difference between small cap, large cap and mid cap?

Equity mutual funds give good results over a long period of time. The higher the investor is willing to take risk, the higher return will he be getting.

The least risky among mutual funds are large cap mutual funds. Here large cap funds usually invest in large cap companies. In India, large cap companies are usually very stable and can handle tough economic conditions far better than smaller companies. Therefore, when one invests in the best large cap mutual funds, his money gets invested in stable companies. Large cap refers to the top 100 companies by market size.

Same way mid cap mutual funds are comparatively more risky than large cap mutual funds. Here investment is made in companies with market capitalisation that can be roughly anywhere between INR 50 billion and INR 200 billion. These companies are comparatively less stable than large cap companies but also give better returns than large cap. Stocks of this company are volatile.

Small cap mutual funds have the riskiest stocks because of the high volatility. These are companies with lower market capitalisation. These are very unstable companies and will take the worst hit in case of a market downturn. Investors willing to take a lot of risk invest in this type of funds.

Below mentioned are mutual funds for large cap, mid cap and small cap in the same order for investor’s reference:

Cap here stands for market capitalization. It is calculated by company’s stock price multiplied by the number of outstanding shares.

Publically traded companies are generally grouped into three categories on the basis of market capitalization: Large, mid and small cap companies. However, there is no cutoff rules defined for placing companies into these categories.

Mutual funds are also categorized on the basis of the market cap:

Large Cap funds: When mutual fund invest large portion of the capital in companies having large market capitalization, these funds are called Large Cap equity funds. These funds provide sustainable returns and stability to investors.

Mid- Cap funds: Here, the mutual fund invest in stocks of mid size companies. These funds provide moderate risk to investors.

Small Cap funds: In these types of funds, fund manager invests major portion of the investors’ money in stocks of companies having low market capitalization.

Multi Cap funds: These funds are used to minimize the risk and diversify the investment. In these funds, capital is invested in companies across different sectors.

Stock market is broadly divided on basis of market capitalization as among large cap, mid cap, and small cap. Market capitalization is calculated by multiplication of the number of outstanding shares company offered with the current market price of one share.

Let’s see the difference between these market cap:

Large cap companies

1. Large cap are big, well established companies of the equity market. These companies are strong, reputable and trustworthy. Large cap companies generally are top 100 companies in a market. There is no consensus on the capitalization as such.
2. Stocks of large cap companies are least risky investment instrument.
3. Large cap funds have lower growth potential and give investors lower returns on investment as compared to mid and small cap funds. But provide good stability in returns on investment, if invested for longer duration.
4. Investment in large cap is best suited for investors with low risk appetite and for investment of lumpsum amount.
5. Liquidity of shares of large cap is very high because they are reputed, mature and firmly established players in the market.
6. They are highly followed in stock market and usually tapped by institutional investors.

Mid cap companies

1. Mid cap are compact companies of the equity market, falling somewhere between small and large cap companies and are 100-250 companies in a market after large cap companies.
2. Stocks of mid cap companies are riskier then large cap but not as risky investment instrument as small cap
3. Mid cap funds have better growth potential and give investors higher returns on investment as compared to large cap funds
4. Investment in mid cap companies is best suited for investors with moderate risk appetite and is most popular among investors.
5. Liquidity of shares of mid cap companies is more as compared to small cap funds.
6. They are highly followed in stock market and usually tapped by institutional investors.

Small cap companies

1. Small cap are small companies of stock market and are all the companies apart from large and mid cap companies in a market .
2. Stocks of small cap companies highly risky and volatile investment instrument.
3. Small cap funds have exponential growth potential and give investors high returns on investment
4. Investment in small cap is best suited for investors with high risk appetite and have good knowledge of stock market.
5. Liquidity of shares of small cap companies is least.
6. They are under followed in stock market and usually untapped by institutional investors, giving a huge opportunity to wise investors to grow their investment quickly.

Happy Investing!

The size of companies. Large cap refers to the top 100 companies by market size. Mid cap, to 100-250. Small cap, the companies smaller than those. There is no clear definition of these. Many different sources define the terms differently.

So a large cap mutual fund should primarily invest in large cap companies and so on.