As the name suggests these mutual funds investment is based on concept of market capitalization of constituent company stock. Market Cap Based Funds are classified into large cap funds, mid cap funds, small cap funds.
Large cap funds constitutes companies with average market free float capitalization above Rs. 5000 Crore at the time of selection.
Mid cap funds constitutes companies with average market free float capitalization ranging from Rs. 1000 Crore to Rs. 5000 Crore at the time of selection.
Small cap funds constitutes companies with average free float market capitalization below Rs. 1000 Crore at the time of selection.
Large Cap Fund
A Large Cap fund invests predominantly in large cap companies. .These companies have a established business and are generally dominant in the industry also have good growth and track record. The performance of the Large Cap funds is seen as stable. It can be benchmarked to BSE 30 or Nifty 50.These funds are ideal for investors who are more risk averse.
Mid Cap Fund
A Mid Cap fund invests majorly in mid cap companies. Investor can get higher returns comparatively and the same time return in volatility might be higher. Investors who are willing to take some risk than you can consider investing in these funds. It can be benchmarked to BSE Mid Cap or CNX Nifty Mid Cap.
Small Cap Fund
A Small Cap fund invests mainly in small cap companies. These companies are generally in early stage of their business or small in their category.They can have lot of expansion and growth opportunities, so they have the potential of earning highest profits and growth compared to large and mid-caps. Thus, investment Small Cap funds is advisable for aggressive investors who are willing to take high risk to earn higher returns. It can be benchmarked to BSE Small Cap or CNX Nifty Small Cap.
Longer time horizon of investment is beneficial for these funds. Investment in Mid & Small Cap funds can be fruitful when the market conditions are good, because mid & small cap companies generally outperform the large caps. But on the other hand, it can be a poor investment option in times of market instability because the companies in the portfolio suffer greatly during such times since they are less stable and less established. Over a long period of time, some of the mid-cap and small-cap companies will become large companies, whose stocks get re-rated in the market. The healthy returns on such stocks can boost the returns on mid-cap and small-cap portfolios.
Multi Cap Fund
Multi Cap Funds invest in a mix of large, mid and small cap companies. The fund manager has the flexibility to invest in different companies. Due to the combination of variety of companies in the portfolio, the portfolio gets diversified. Thus diversification reduces the risk of the overall portfolio. It is different from diversified funds in a way that in offer document multi cap funds gives limits for minimum and maximum exposure for each market caps.
Table 1: Example, understanding purpose, Top ten holdings of one of the Multicap fund portfolio