Difference Between Large Cap, Mid Cap And Small Cap Fund

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The stock market consists of companies which can be small or big depending on the industry they are in or how many customers they have. In the stock market, companies are classified as large cap, mid cap, or small cap, depending on the value of shares they have issued to the public. They are classified this way:

The top 100 companies in terms of market capitalization are called large cap stocks which are large, stable companies
Ranked 101-250 are mid cap stocks
Every stock that is ranked 251 onwards is a small cap stock, which is risky to invest in but has the highest earning potential

Investing in a mix of all three ensures that your money grows in all economic conditions.

Investing in the stock market is an exciting way to grow your wealth, but it can seem complicated when you're starting out. Having a clear grasp of how companies are categorized by market capitalization; large-cap, mid-cap, and small-cap, can make your decisions easier. Each category offers a distinct combination of risk, stability, and growth potential. Let’s look at how these differences help ensure that your investments are in line with your long-term financial objectives.

What is market capitalisation?

Market capitalisation, often referred to as market cap, represents the total value of a company’s outstanding shares in the market. It is determined by multiplying the current share price by the total number of shares in circulation.

1. Large-cap stocks

Companies ranked among the top 100 by market capitalisation
Typically, well-established with consistent performance
Include blue-chip companies
Known for stability and steady returns

2. Mid-cap stocks

Companies ranked between 101 and 250 by market capitalisation
Represent growing businesses with significant potential
Higher growth potential than large caps

3. Small-cap stocks

Companies ranked beyond 250 in terms of market capitalisation
Emerging businesses with niche focus or new ideas
Riskier than mid-cap stocks but have the potential to deliver substantial returns

Differences between large, mid, and small-cap funds:

Company Type	Large Cap	Mid Cap	Small Cap
Company Type	Established and well-known	Growing companies	Emerging, high-potential companies
Growth Potential	Low	Medium	High
Risk	Low	Moderately risky	Highly Risky

Here’s how you can diversify your portfolio using this knowledge

Identify your risk appetite

Low-risk tolerance- large caps,
Higher returns- mid and small-caps.

Allocate wisely

Build a diversified portfolio that aligns with your risk appetite

Review regularly

Adjust your portfolio periodically to align with your goals and market trends.

Popular indices for tracking large-cap, mid-cap, and small-cap stocks

Large-cap: Nifty 50, Nifty 100, S&P BSE Sensex, S&P BSE 100

Mid-cap: Nifty Midcap 50, Nifty Midcap 100, S&P BSE Midcap, Nifty Midcap 150

Small-cap: Nifty Smallcap 50, Nifty Smallcap 100, Nifty Smallcap 250, S&P BSE Smallcap

Also read: How to invest in Mutual Funds?

Conclusion

The key to understanding the stock market lies in understanding these three market cap sizes. By understanding the difference and aligning your investments with your portfolio goals, you can create a portfolio that rewards you. Mutual Funds offer a convenient way to invest across these segments, providing built-in diversification, professional management, and affordability.

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