At times, investing can seem like being in a bustling marketplace. There are countless vendors, each selling its unique investment products. You have to navigate through the noise and chaos, carefully examining each option to find the one that matches your goals and risk appetite. If the noise of market capitalisations is confusing for you, here is a direct comparison between mid-cap vs small-cap funds that can help. Let's unravel this puzzle!
What is a mid-cap fund?
The Securities and Exchange Board of India (SEBI) categorises companies in terms of full market capitalisation. Market capitalisation is the total market value of a publically-traded company's outstanding shares. A mid-cap fund is a mutual fund scheme that invests in companies that have medium market capitalisations. According to SEBI's categorisation, companies ranked from 101st to 250th in terms of market capitalisation are known as mid-cap companies.
These companies fall between large and small-cap companies. While they have been around for some time and are beyond the initial start-up phase, they are still growing and expanding and have the potential to get to the top in their respective fields. A mid-cap fund can be ideal for you if you seek balanced growth without too much or too little risk.
What is a small-cap fund?
A small-cap fund is a mutual fund scheme that invests in small-cap companies. As per SEBI's categorisation, small-cap companies are ranked from 251 onwards in terms of full market capitalisation. These companies may be new in the market and in the initial stages of growth, which can make them a bit unstable and unpredictable as far as stock market volatility is concerned. However, because they have just started out, they also have the highest prospective for growth. A small-cap fund can carry risk, but it can also offer an opportunity to be a part of a company's growth journey.
Let's understand a few more intricate details about mid and small-cap funds that make them stand apart.
Difference between small-cap and mid-cap funds
Points of difference | Mid-cap funds | Small-cap funds |
Invests in | Mid-cap funds invest in medium-sized companies that are ranked from 101st to 250th in terms of market capitalisation by SEBI. | Small-cap funds invest in companies ranked from 251 onwards in terms of full market capitalisation by SEBI. |
Fund composition | Mid-cap funds are open-ended equity funds. They invest at least 65% of their total assets in equity and equity-related instruments of mid-cap companies. | Small-cap funds are also open-ended equity funds. They invest 65% of their total assets in equity and equity-related instruments of small-cap companies. |
Risk | Mid-cap funds invest in companies that have been around for some time. As a result, they may be relatively more stable than small-cap companies. But they are still susceptible to market volatility and carry some risk. | Small-cap funds invest in new companies that may not be as stable in the face of market volatility. These funds carry relatively more risk than mid-cap funds. |
Investor profile | Mid-cap funds cater to moderate risk appetites. If you are looking for a balance of risk and return, mid-cap funds may be suitable for you. | Small-cap funds can carry high risk, which makes them suitable for investors with a high risk appetite. |
Which is better for investment, small-cap funds or mid-cap funds?
It is important to carefully consider the risks and rewards of each option before you pick any of these mutual funds. While all equity funds carry high risk, mid-cap funds may be less risky compared to small-cap funds. Additionally, mid-cap funds can help you earn moderate rewards as they invest in relatively established companies that still have the potential to grow. A small-cap fund, on the other hand, can offer you the potential for better growth but at the cost of more risk.
There is no one-size-fits-all approach here, but you can pick options based on where you are in your life at this point. You may also diversify your portfolio with small, mid, and large-cap funds to benefit from different types of mutual fund schemes.
Conclusion
Both small and mid-cap funds can have their unique advantages and risks. Remember to keep your long-term goals in mind and assess your risk appetite when you choose mutual funds for your investment portfolio. This can ensure that your portfolio reflects your needs and delivers as per your expectations.
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
