Large-cap v Mid-cap v Small-cap – Mutual Funds and Stocks | Looking Beyond Capitalisation | ETMONEY



Equity investing is for your long-term goals and want to get started, but wait. There are categories to choose from. There are fund categories including Large-Cap, Mid-Cap, Small-Cap Funds, etc. While someone mentions you should go for Large-Cap Funds, others suggest investing in Small-Cap Funds. And so it is easy to get confused.

In this video, we aim to look at large caps, mid-caps, and small caps in different ways and means with the objective of giving you a very refreshing perspective of what more can one expect from each of these capitalisation types beyond the size of the companies.

Topics Covered
00:00 introduction
01:34 WHAT ARE LARGE CAPS, MID CAPS AND SMALL CAPS?
06:49 CHARACTERIZING BEYOND CAPITALIZATION
11:56 ETMoney Opinion

What are Large-Cap, Mid-Cap, and Small-Cap Funds?

👉 Large-Cap Funds:
In Large-Cap Funds, investments are made in companies that rank between 1 and 100 based on their complete market capitalisation. These can be companies like Reliance, SBI, ITC, HUL, Britannia, and so on. Large-Cap Funds are considered relatively more stable because the companies are typically reputable, trustworthy, and well established in the market. These are mostly market leaders and well-known brands with a good performance track record over the medium to the long-term investment horizon.

👉 Mid-Cap Funds:
Mid-Cap Funds invest in mid-sized companies that rank between 101 and 250 in terms of market capitalisation. Think companies like Godrej Industries, Voltas, etc. Mid-cap companies have the potential to generate good returns over the long term. Mid-cap funds tend to be riskier than large-cap funds but possess the capability to produce higher returns in the long term.

👉 Small-Cap Funds:
As per SEBI classification, Small-Cap Funds invest in companies ranking 251st onwards in terms of full market capitalisation. These are usually companies that are smaller in size when compared to large and mid-cap, and there can be hundreds of them. Since they are small, they can implement ideas quickly and respond to market opportunities with more agility vis a vis a larger organization. In contrast, during slowdowns, small-caps can see much steeper lows than their large-cap counterparts. Hence, the element of risk is always there.

👉 How to select these companies:
People in their 20s and 30s should not shy away from taking that little extra volatility by investing in companies that can potentially offer higher returns on account of a better ROE, a superior business model, and stronger growth potential. One need not be boxed within midcap or smallcap environment and that, there are potential winners across the entire universe of listed companies

Three approaches that can employ to pick these select companies

1. Get yourself a trading account and buy individual stocks that meet your criteria.
2. Investing in active mutual funds- Now, you will need to zero in on a fund or identify a fund manager who works on a style that’s more suited to you.
3. Factor Indexing – It looks to identify stocks with specific characteristics and these are a lot like the ones we discussed like profitability, valuation, growth, risk, momentum, value, etc.

Resources:
Socratic method of investing – https://www.youtube.com/watch?v=HsGzVKB6nm4
https://www.amfiindia.com/research-information/other-data/categorization-of-stocks
Momentum Investing https://www.youtube.com/watch?v=5kGFEKUSjho
Low volatility Investing https://www.youtube.com/watch?v=2IzqgzJwego

#ETMONEY​ #marketcap #MutualFunds

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