It is imperative to understand the meaning and relevance of
mid cap and large cap funds before making them a part of
your investment portfolio.
Having realised the potential of returns in mutual fund
investing, you might be keen on parking some funds into this
investment route. You may also be aware of the linkage between
risk and reward involved in equity-oriented mutual funds. But
then your decision-making skills are put to a real test as soon
as you start researching on types of funds.
For the last couple of years, there is a flurry of ‘mid-cap’ and
‘large-cap’ funds in the market. And choosing between the two is
a challenge. Let’s discuss the meaning and relevance of these
funds before you get them into your portfolio.
What is a large-cap fund?
A large-cap fund primarily
invests in companies with large market capitalisation. Although,
there is no fixed definition of a large-cap company in India, in
the international arena companies with market capitalisation of
more than USD 2-billion are regarded as large caps. That implies
that a large-cap company is one with a market cap of more than
Rs 8,000 crore.
Market capitalisation is calculated by multiplying the total
number of shares issued by the company with price per share. For
instance, if ABC Limited has issued 1 lakh shares in the market
and each share has a cost of Rs 250, it’s market capitalisation
will be: 1-lakh shares x Rs 250 = Rs 25 crore.
Indian Oil Corporation (IOC, Reliance Industries Limited (RIL),
Infosys, Wipro, Bharti, ITC, Tata Steel, SBI, HDFC, ICICI, BHEL,
Should you invest?
the examples of large-cap companies, you would have deciphered
that these are usually frontline/blue chip companies. Investing
in these companies through large-cap funds offers a relatively
safer investment option since these companies have shown
favourable performance over a consistent period of time and
proved the ability to succeed over hiccups that come up during
their initial years of operation.
investing in these companies offer moderate-to-low returns in
comparison with small and midcap funds as large-cap companies
have already surpassed their period of dynamic growth and thus
their share prices move up in a moderate fashion.
What is a mid-cap fund?
As per the BSE Midcap Index, a
company with market capitalisation between Rs 500 crore and Rs
8,000 crore can be categorised as a mid-cap company. The index
is topped by Divi’s Lab, which has a market cap of about Rs
Other examples of
Small Cap companies:
IVRCL Infras, Amtek
Auto, India Cement, IFCI, Voltas, Titan, RNRL, Thermax, TV18,
Rolta, Moser Baer, Exide, Aurobindo Pharma, Britannia, Yes Bank
Should you invest?
The beauty of investing in mid-cap companies through mutual
funds is that you can become a part of the success of
well-positioned companies selected by professional fund managers
and can thus achieve superior investment returns. After all,
Infosys, Satyam, Bharti were all mid-cap companies in their
initial years and today they are pioneers in their respective
mid-cap fund may garner annual returns of as high as 10-15 times
more than large-cap funds. However, equal are the chances of you
ending up with a major erosion in the value of your investments
owing to the high risks involved with investing in mid-cap
Investing in mid-cap oriented
funds should be done with a time horizon of at least 3 years,
preferably more than 5 years. The same also holds true for large
caps if you want to see a significant appreciation in the value
of your portfolio.
Alternatively, you can have a blend of both types of funds (with
proven track record) in your kitty, as per your risk and return
appetite, and of course, your cash requirements for the near
host of ‘large-cap’ and ‘mid-cap’ funds are available in the
market today, and the success of your investment goals depend on
choosing the right one.
funds invest in blue chips with market capitalisation of more
than Rs 8,000 crore. They are relatively safer than mid-cap ones
but may offer conservative returns.
funds invest in companies with market capitalisation of anywhere
between Rs 500 crore and Rs 8,000 crore. These funds can bring
you superior returns as mid-cap companies enjoy dynamic growth.
Selecting between the two should be as per your risk and return
appetite. You can also have a blend of both types of funds in
The investment horizon should be above 3 years, preferably, over
5 years for both types of funds.