Understanding the difference between large, mid, and small-cap funds

Companies are tagged such based on their market value; their risk profiles vary

If you are new in the stock market, you will come across large-, mid- and small-cap companies. Let us understand the difference between these companies.

Large-cap companies

According to rules set by the Securities and Exchange Board of India (Sebi), companies listed on the stock exchanges are ranked based on their market capitalisation. Large-cap are top 100 companies with high market value (market cap) of around Rs 20,000 crore each or more. They are also called ‘blue-chip stocks’.

Mid-cap companies

Mid-cap companies are those ranked between 101 and 250 in terms of market capitalisation of around Rs 5,000 to Rs 20000 crore each. Mid-cap companies also have a good track record, but are involved with more risk than large-cap funds. Mid-cap companies may or may not be included in broad market indexes due to their limited market presence.

Small cap companies

Such companies are ranked 251st and below and their market cap is below Rs 5000 crores. The small-cap bunch comprises relatively new startups or businesses in the developmental stage.

Large-cap funds:

Large cap mutual funds primarily invest in the top 100 companies of India. Large-cap funds have a stronger risk profile.

Mid cap funds:

Mid-cap funds offer moderate diversification, as they invest in medium-sized companies across different sectors.

Small cap funds:

Small-cap funds are equity funds that focus on investing in small companies, typically those with a market capitalization of less than Rs 5,000 crore each. These companies fall outside the top 250 but have the potential for impressive returns. Small-cap stocks can be volatile.