David Thacker
Equity mutual funds are further categorized by market regulator SEBI (Securities and Exchange Board of India). This categorization has been done in terms of market capitalization which each of the equity fund targets for investing.
- A large cap fund invests in companies with large market capitalization
- A mid cap fund invests in companies with medium market capitalization
- A small cap fund invests in companies with small market capitalization
- A multi cap fund invests in companies with small, mid and large market capitalization
- An ELSS fund is a tax saving equity fund that invests in large caps and select mid caps
- A hybrid fund invests in both equity and debt instruments for income generation
The reason for categorization by SEBI is to help investors make an informed investment decision. This also helps one equity scheme distinguish from the other, be it in terms of its investment objective, asset allocation strategy or risk profile.
What are large cap funds?
A large cap fund is an open ended Equity Mutual Fund scheme that predominantly invests in large cap stocks. As per SEBI guidelines, a large cap scheme must allocate a minimum of 80 percent of its total assets to stocks of companies with large market capitalization. A large cap fund only invests in companies that are ranked from 1st to 100th in terms of market capitalization.
What are mid cap funds?
A mid cap fund is an open ended scheme that aims at generating capital appreciation over the long term by predominantly investing in stocks of companies with medium market capitalization. These funds are considered to less volatile than small caps as they select stocks of companies that are ranked between 101st to 250th in terms of market capitalization.
Difference between large cap funds and mid cap funds
Below stated as some of the points that distinguish a large cap fund from a mid cap fund
| Parameter | Large Cap Funds | Mid Cap Funds |
| Asset Allocation | A large cap fund must invest a minimum of 80 percent of its total assets in stocks of large cap companies | A mid cap fund must allocate a minimum of 65 percent of its total assets in stocks of mid cap companies |
| Market Cap | This fund predominantly invests in companies with large market capitalization | This fund predominantly invests in companies with medim market capitalization |
| Risk Profile | A large cap fund is an equity which is considered less volatile as compared to mid cap funds | A mid cap fund is an equity scheme which is considered to be less volatile than small cap funds |
| Returns | A large cap fund aims at generating stable returns over the long term | A mid cap fund aims at generating returns over the long term that are better than those offered by large cap funds |
| Who should invest | Investors seeking capital appreciation through investments in market linked schemes can consider investing in a large cap fund. | Investors with moderate to high risk appetite can consider investing in a mid cap fund. |
Who offer better capital appreciation – Large cap funds or Mid cap funds?
Both large cap funds and mid cap funds are equity oriented schemes that aim at generating capital appreciation over the long term. Having said that not of these schemes offer guaranteed returns. These are equity schemes whose investment portfolio is constantly exposed to market’s volatile nature. This makes investments in any equity fund a high risk investment. However, if you wish to invest in a disciplined manner till your investment objective is achieved, you can start a monthly SIP in a mutual fund scheme of your choice.
