Skip to main content

Mutual Funds Invest Across Market Capitalization

                                      

                    

If you've seen mutual fund advertisements, odds are you've come across the terms large-cap funds, mid-cap funds and small cap funds. In this context, the word 'cap' refers to the market capitalisation, or the size, of a listed company. As you will learn in this article, a company's size is an important criterion for mutual funds, when picking stocks for equity portfolios. This is because investing in a company of a certain size brings with it unique opportunities and risks – the advantages and drawbacks of large-cap fund investment are different from that of a small-cap fund investment. Normally the definition of Large cap, Midcap and small cap are provided in the Scheme Information Documents of respective Scheme. Read on to get a clear picture.

Large cap funds

Large cap funds are those funds which invest a larger proportion of their corpus in companies with large market capitalization. Trustworthy, reputable and strong are three adjectives that are often used to describe a large-cap company. These are the old and well-established players with a track record. Such companies typically have strong corporate-governance practices, and have generated wealth for their investors slowly and steadily over a long term. These corporate houses are usually among the most highly followed and well-researched on the market. Mutual funds that invest a majority of their investible corpus in these companies are labeled as large-cap funds.

Being seasoned players, the underlying companies in the portfolio of large-cap funds may be considered as relatively steady compounders and regular dividend payers. On the risk-return spectrum, large-cap funds deliver steady returns with relatively lower risk, compared with mid- and small-cap funds. They are ideal for investors with lower risk appetite. So, adopt a long-term perspective, stay patient, and remain invested to reap good returns over the long term.

As can be seen in the graph below, large-cap funds have given better returns over a long term.

Chart 1: Daily average rolling returns since inception - CRISIL-AMFI Large-cap, mid-cap and small cap fund performance indices

Source: Crisil Research

Mid-cap funds

Mid-caps are those that they lie between large-caps and small-caps in terms of company size. During a bull phase, mid-cap stocks may outperform their large-cap counterparts, as these companies seek to expand by looking out for suitable growth opportunities. Investors should, however, note that the underlying stocks are more volatile than their large-cap counterparts. Mutual funds that mainly invest in mid-cap entities are labeled mid-cap funds. Through prudent stock selection, diversification across sectors, and market timing, fund managers aim for better returns.

Mid-cap equity funds are advised for investors with a higher risk tolerance than large-cap investors. So, invest in these schemes if you seek higher capital appreciation, albeit with reasonably higher risk.

Small caps funds

Small-cap stocks typically have the highest growth potential, since the underlying companies are young, and seek to expand aggressively. They are more vulnerable to a business or economic downturn, making them more volatile than large and mid-caps. Investors who are keen to invest in the small-cap space and may not have the time to research but possess the high risk-taking capacity can look to invest in small cap funds.

Small- and mid-cap funds typically outperform large-caps during a bull market (Chart 2), but decline more when the sentiment turns bearish. The choice of a right fund should be in line with the risk appetite, return expectations and investment horizon of the investor.

Chart 2: Market-phase performance of large-, mid- and small-cap funds

Source: Crisil Research



Investment in the large, small and mid-cap funds can also be done via Systematic-Investment Plan (SIP), wherein a fixed sum is invested in funds at regular intervals, which averages out the cost – buy more units when the net asset value (NAV) falls and less when the NAV rises – thereby reducing the volatility across market cycles.

Summing up

Fund market capitalisation What are they? Risks Ideal for
Large-cap funds Invest in large firms. Endeavor to provide better capital appreciation over a long term and distribute dividend fairly regularly. As they are financially strong, they are capable of withstanding bear markets. High Risk. May underperform the small- and mid-cap funds during a bull market. Risk-averse investors, who want equity exposure to high-quality stocks, and have a long-term investment perspective.
Mid-cap funds Invest in medium-sized companies that are actively seeking investment opportunities for expansion. High Risk. Mid-caps are more volatile than large-caps. Investors with a greater risk-taking ability compared with large-cap fund investors, who want to capture the price gains during a bull market.
Small-cap funds Invest in small-cap companies, which may have higher growth potential High Risk, Prices have greater volatility compared to both large-caps and mid-caps. Investors with high risk appetite and higher return expectations can invest in such funds.

Disclaimer : Any information contained in this article is only for informational purpose and does not constitute advice or offer to sell/purchase units of the schemes of SBI Mutual Fund. Information and content herein has been provided by CRISIL Research, a Division of CRISIL Limited, and is to be read from an investment awareness and education perspective only. The views / content expressed herein do not constitute the opinions of SBI Mutual Fund or recommendation of any course of action to be followed by the reader. Investors should consult their financial advisers before taking any investment decision.

-----------------------------------------------
Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saver Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 Tax Saver Mutual Funds Online

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

-----------------------------------------------

Popular posts from this blog

Jeevan Labh

 The Life Insurance Corporation of India has announced Jeevan Labh , its limited-premium, with-profits endowment plan .   It comes with a premium paying terms of 10, 15 and 16 years for corresponding policy tenures of 16, 21, and 25 years respectively. ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) Fund 9. Religare Tax Plan 10. Birla Sun Life Tax Plan Invest in Best Performing 2016 Tax Saver Mutual Funds Online Invest Online Download Application Forms For further information contact Prajna Capital on 94 83...

Liquidity Adjustment Facility

Liquidity adjustment facility (LAF) is a money market tool used by the central bank of a country (in India it is the Reserve Bank of India ), to infuse funds into the country's banking system when liquidity dries up. Again, in case there is excess liquidity, the central bank uses some tools to help banks manage their surplus liquidity. Usually the RBI uses the repurchase facility (called Repo ) to give short-term loans to banks to meet their temporary liquidity shortage. On the other, hand RBI uses reverse repo facility to help banks park their excess liquidity with it. Banks usually use various securities, which are approved by the RBI, as collateral when they take money from the RBI to meet their short term liquidity requirement     Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara...

Tata Dynamic Bond Fund exit load

Tata Mutual Fund has revised the exit load of Tata Dynamic Bond Fund to 0.50 per cent if redeemed on or before 180 days. Currently, there is no exit load. The effective date is March 25, 2015. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - Invest Online Download Application Forms For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot] Com OR Leave a missed...

Mutual Fund Review: Tata Balanced

  It underperformed severely at first, but Tata Balanced has shown its mettle in the past five years… After five years of severe underperformance, the fund began to pull up its socks in 2002 and delivered a brilliant performance in 2003. Such a top quartile performance was repeated only in 2007 and 2009. By and large, this fund is not known for its outstanding returns, but over a long-period of time, its investors won't be unhappy. Over the past five years ended May 31, 2011 it has delivered an annualized return of 14 per cent (category average: 11%).   In 2008, it was the high exposure to Metals and Capital Goods that hit the fund hard. Towards the end of that year, exposure to both the sectors was reduced significantly while that to FMCG was increased. Once the market began to rally in 2009, the fund manager immediately reduced allocation to FMCG from 16 per cent (March 2009) to 4 per cent (May 2009) and exposure to Technology began to increase. These moves helped the fund...

Home Loans that Save Time and Money

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Home Loans that Save Time and Money  You can deposit surplus money in these special home loan schemes and reduce your loan tenure significantly in the process   IF YOU are thinking of taking a home loan and are confident of generating a surplus every month after paying the regular EMI, you can opt for loan schemes with an overdraft facility that not only cut interest payments significantly, but also reduce the loan tenure. State Bank of India, Standard Chartered Bank, HSBC and Central Bank of India offer such home loan products. Under the scheme, as a home loan borrower, you can deposit any surplus that you have into the home loan account, though you retain the option of withdrawing the sum, if required. By depositing an amount higher than your EMI , you save on interest outgo. The principal amoun...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now