Investing in Mutual Funds is a very head aching task. When there is abundant of options available in the market, then finding different categories and options then understanding them is a huge task. One crucial aspect that always keeps the investors thinking is the distinction between large-mid, mid-cap and small-cap mutual funds. These terms that I mentioned above may look very simple but holds immense of knowledge for someone to understand. So what exactly I want to say is that its not always easy to understand for the fresh investors so, lets have an eye on all the aspects that will make you better understand about the caps and do your investment better.
1) Large Cap Mutual Funds :
When it comes to understanding the caps then Large-cap mutual funds is the crucial one. Let me try to unbox the secret.
Large cap mutual funds refers to the funds that primarily invest in companies with a high market capitalization (market cap). This market cap typically exceed a certain threshold, often set at 10 billion. This companies are called industry giants and some common household names of these companies are – Reliance industries, Infosys, HDFC bank etc.
Some Key Characteristics of Large-cap Funds are :
Stability :
Large cap companies are known as established players with a strong track record of financial performance . This means there will be a stability and stable returns with lower volatility in the funds that invest in them.
Growth Potential :
The graph of growth is not as high as the mid-cap or the small – cap but large cap still give moderate growth consistent dividend payouts and gradual share price appreciation.
Risk Profile :
Compare to other cap profiles, large cap category has less amount of risks to deal with. There stability and diversification always low the impact of market fluctuations.
- Liquidity :
Shares of large cap companies are highly liquid, meaning that this can be easily brought an sold. This makes large cap funds suitable for investors who require flexibility in accessing their money.
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Why should you consider Large – Cap Funds ?
1. Conservative Risk Tolerance :
Investors who want stability and capital preservation over high returns can makes this an important factor.
2. Long-Term investment Horizon :
While it offers a steady growth, large cap funds may not give that explosive returns. This type of caps are best suited for long term investments.
3. Income Needs :
Many large cap companies give regular dividend, which provides investors steady stream of income.
2) Mid-Cap Funds : Balanced Growth and Stability :
Yes Large-cap giants are great but nevertheless mid-cap funds are also something that you should checkout . Midcap usually refers to the company or brand who have the net worth of 250 million to 10 billion. Just look to them as young stars who have immense of potential in competing with the giants and has immense growth potential. Some examples of this companies are – Tata Motors, Bajaj Auto, and Cipla.
Key characteristics of Mid-cap funds are :
Balanced approach :
Mid-cap funds has a sweet spot between stability and growth, they are less volatile and has higher growth potential than large-cap funds.
Higher Returns :
Compared to large-cap funds mid-cap funds have larger returns as they invest in companies with higher growth trajectories.
Moderate Risk :
While offering larger returns mid-cap also offers higher risk than the large-cap funds. They are opened to market ups and downs and economic uncertainties
Why you should consider Mid-cap funds ?
To be very honest you only look to invest here when you are ready for the market and have a better knowledge of market, some factors that you should consider while choosing mid-cap funds are –
1. Moderate Risk Tolerance :
From the above heading you can simply understand that you are willing to take moderate risks for higher returns.
2. Medium term investment Horizon :
Mid-cap investment requires longer investment horizon than large cap funds ideally 5-7 years to ride out market cycles and allow compounding to work its magic.
3. Growth oriented Goals :
Those who want higher returns and with a bit of stability with some risks will find it interesting.
3) Small-Cap funds : Growth is at its peak
Small-cap funds are the companies with the market capitalization of below 250 million. This are mainly startup companies or niches and are growing at a good rate in the market. Examples are – Zomato, Rapido, Swiggy etc.
The Key characteristics of this are –
- High Flying growth potential :
This small-cap companies has explosive growth, it can often surprise you with there growth. This is the one and only reason that usually attract the investors those who want significant profits.
Volatile Ride :
The stock prices can swing with some news and market fluctuations, or sector specific events, so there is always high risk involved. So there I am calling it volatile ride.
High risk Profile :
Due to instable market movements and limited resources, small cap funds are the riskiest among all the funds in the market. This are not for those who have week heart.
Limited Liquidity :
Shares of small-cap funds are less than other caps so it is very difficult to buy and sale the shares, making it a difficult cap to deal with. One should only look for small who have immense knowledge on the companies he / she is looking forward to invest. With a bigger heart and taking the risk only you will be successful in this field.
Conclusion :Hope, the above information about all the caps in the market are helpful in your research and may it help you to choose the right cap according to your choice of risk that you are willing to take. Yes, I would also adore you to have the had of successful person in your side while investing in mutual fund, it is always a good practice to follow.
