Skip to main content

Stock Market: Investing based on market capitalisation

 

How the three segments – large, small and mid cap stocks – work for investors


   Market cap is market capitalisation or the equity value of a company. A company's market capitalisation is obtained by multiplying the current market price with the number of shares outstanding. Stocks are classified as midcap, large-cap and small-cap, based on this. Investing in small-cap stocks is considered risky while new investors prefer the more stable large-cap companies. Let's find out more about investing based on market capitalisation.

Investing in large-cap stocks    

Characteristics: Largecap stocks are big players in the stock markets. Considered as safe stocks owing to the size of these companies, the stock prices are usually stable. A diligent investor must have a look at a company's financial statement and fundamentals before investing his money. This is because large-cap stocks can have a direct bearing on the overall economic climate.


   The stability offered by these stocks comes at a price. Large-cap stocks do not usually deliver huge unanticipated returns like small-cap stocks. This is because largecap companies have already seen phenomenal growth and it takes a tremendous effort to go higher from there.


   Investors who find these ideal: Stability and steady returns offered by large-cap companies make them a perfect choice for investors who are unwilling to take more risks. Large-cap stocks are usually held for long periods like parking towards retirement savings or children's marriage.

Investing in mid-cap stocks    

Characteristics: Mid-cap stocks boast of stability yet retaining tremendous growth potential. Mid-caps provide a moderate alternative between large-caps that may find it difficult to increase shareholder value and the riskier small-caps. Further, mid-cap stocks/funds have evolved as an attractive investment option because of the high cost of large-cap stocks.


   However, investors need to prudently identify worthy mid-cap stocks that may not have a bad fall in a plunging market. The associated stock volatility is a cause for concern. Investing excessively in mid-caps could give rise to liquidity issues when you intend to sell. This is especially true in a bad market. In such a case, you must be prepared to hold the stock for a longer time.


   A well-diversified portfolio of mid-cap stocks that hold tremendous growth potential could hold the key to successful investing.


   Investors who find these ideal: New and young investors can safely invest in mid-cap stocks.

Investing in small-cap stocks    

Characteristics: Smallcap companies exhibit considerable volatility and are riskier. Hence, investors must select these stocks after a thorough research on the stock's fundamentals. To tackle the volatility and short-term losses, you must be prepared to stay invested for extended periods. 

   While investing in smallcap stocks, investors must be cautious not to end up with illiquid stocks and glitter stocks. An illiquid stock in a company does not trade actively as there is not much investor interest in this stock. Glitter stocks are those attention-hogging stocks that were in the news, had high trading volumes or extreme movements in the price.


   Unlike large-caps, some small-caps have grown at high speeds. But investors must be aware that the associated returns come at a high risk. Small-caps may hold potential for profits, however, investors must exit if its financial performance doesn't meet its target growth.


   Investors who find these ideal: These are the favorites of young and aggressive investors who dream of building wealth at a brisk pace.


   Finally, the choice of market capitalisation you desire to invest in largely depends on your objectives, financial health and risk tolerance level. Investors who do not have time for research can invest in mutual funds that offer a wide platter of investment options based on stock size.

 


Popular posts from this blog

Mutual Fund Exit Load Changes

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 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...

Birla Sun Life Mutual Fund Launches Birla Sun Life NIFTY ETF

Birla Sun Life has launched a new fund namely, Birla Sun Life Nifty ETF, an open ended exchange traded fund. The new fund will be open for subscription from 4th July to 18th July 2011, at an offer price of Rs 10 per unit. The investment objective of the scheme is to generate returns that closely correspond to the total returns of securities as represented by S&P CNX Nifty, subject to tracking errors. No exit load will be charged under the scheme. The performance of the scheme will be benchmarked against S&P CNX Nifty and will be managed by Satyabrata Mohanty.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/...

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- 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. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Mutual Fund Reivew: Birla Sun Life Asset Allocation Conservative

Birla Sun Life Asset Allocation Conservative has numbers on its side to prove its credibility… Don't be surprised to find this Fund of Funds ( FoF ) in our recommendations. It has earned its place. And despite the difference in the structure of the product, there is no arguing with the numbers.   Of the total 6 years of its existence, the fund has been among the top 10 funds in its category in four of them. Last year it put up an average show and the only year it underperformed its peers was in 2008.   One aspect to look at when investing in an FoF is the expense ratio. The expense ratio of an FoF is capped at a lower limit of 0.75 per cent (2.50% for an actively managed fund). However, the FoF not only has its own expense (though lower) but even the expense ratio of the fund it is investing into. Fortunately, the fund manager takes that into account. "Expense is one of the important criteria used for fund selection and is the main reason for our investment in BSL Ind...

Short-Term Investment Options in Mutual Funds

Mutual funds offer liquid funds and ultra short term funds in the debt category, which are suitable for short investment periods. Ultra short-term funds were earlier known as liquid plus funds. Liquid funds invest in money market instruments with a maturity of 91 days or less. However, there are no such restrictions for ultra short-term funds. Who should invest in these? These are open-ended schemes. Investors with a short investment horizon or with surplus cash and low risk appetite should look at these. These could include corporate as well as retail investors. Those interested in staying invested for less than 15 days can opt for liquid funds. Retail investors who want to remain invested for two-four months, can look at ultra short-term funds. The short duration for both liquid and ultra short-term funds shields them from any interest rate volatility.   What kind of returns do they offer? In terms of an investment period less than 15 days, these funds are comparable to a ba...
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