Understanding Large Cap, Mid Cap and Multi Cap Mutual Funds
Mutual Fund pools the savings of the investors, who share a common financial goal and then invest the corpus collected into a number of financial instruments to maximize the returns.
One of the ways to divide or identify a mutual fund is the criteria of market capitalistion.
The market capitalisation or Market Cap is the total no. of shares of a company outstanding in the stock market multiplied by the market price.
The major three types of mutual funds are Large Cap, Mid Cap and Multi Cap mutual funds.
Below we shed more light on the three types of the Mutual finds based on market cap.
Mutual fund houses have different parameters for choosing a large cap fund. Mostly, the companies which have got more than 1000 crore of market capitalization are taken as large cap companies and then the mutual funds invest in them accordingly. These companies have got maximum potential to grow and earn higher profit since they have large amounts of money at their disposal which can often be used.
The primary objective of the large cap mutual funds is to seek robust capital growth by investing into the stocks of large corporations and frontline blue chip companies.
Large cap mutual funds are generally less volatile than their counterparts which are Mid Cap and Multi Cap mutual funds.
However, the returns are generally low when compared with other classes as they are exposed to lesser risk, but on the long term, these funds have outperformed its peers. It is advisable to invest in Large-cap Mutual funds during volatile market conditions.
The Mid-cap mutual funds invest into the midsized companies that have the potential to generate higher returns. The investors have to take higher risks as compared to the large caps. The Mid cap companies are directly related with the market movements and provide solid returns during market upswing.
Normally, companies with a market capitalization of more than Rs 500 crore limited to Rs 1000 crore are classified as mid cap companies. However, once again different fund houses have different parameters to choose the mid cap companies.
Fund houses generally invests into the mid cap space because the mid cap sector offers a vast growth opportunity when compared to other sectors.
The mid cap mutual funds invest into the mid cap companies since these companies are flexible, agile and adaptable to the ever changing market scenario.
Midcap funds are very unstable and it comes down very fast when the markets head downwards, so utmost attention is needed while investing in this category of funds. Investors who want to diversify their portfolios and willing to take a certain amount of risk should definitely pump in money into these kinds of funds for a longer period of time.
Multi Cap funds give a wider choice to investor. There is no particular criterion for multi-cap funds. The fund houses generally invest the funds into various companies whose market capitalization can be large, mid or even small. It’s a perfect investment opportunity for investors who want to see their investment grow and as well as they want it to be stable.
The advantage with these kinds of funds is that they invest the funds into a number of sectors with different market capitalisation, so even when a sector is making losses, other sector is expected to counter balance the loss by making profit.
Depending upon the risk appetite, an investor should invest into the different types of mutual funds for a longer period of time. Large Cap Funds offer a stable return with exposed to less risky assets while Mid Cap mutual funds gives a higher returns but exposed to higher risks. Multi Cap mutual funds are perfect for investors expecting a decent return and without being exposed to too much risk.
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Debanjan Guha Thakurta is an Analyst at Fundsupermart.com, a B2C arm of iFAST Financial India Pvt Ltd. He is responsible for writing financial articles and reports related to Mutual Funds, Personal Finance and Indian economy.
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