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What are Small Cap and Mid Cap funds?

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Small Cap and Mid Cap funds

Let’s start with the basics. When someone talks about mutual funds in terms of market cap, what do you interpret? Let me explain! The market cap denotes the size of the company in which someone invests and not the size of the mutual fund.

Small Cap Funds

Small cap funds lie at the lowest end of market capitalization. The small cap companies are usually the companies which are at early stage of development or are start-ups. These companies have smaller client base and revenue. Small cap funds are quite often seen as a platform for making big returns within a short period of time.

The nature of these type of funds is volatile as the investment made in companies that are less sound than large cap companies. This volatility can be both advantageous and disadvantageous for the investors. These funds are a great option for those who are ready to tolerate high risk and are looking for aggressive growth. On the other hand, at the time of instability, the less established companies can go bankrupt and these type of funds can suffer badly.

Mid Cap Funds

These are the funds that lie between small and large cap funds. These funds represent mid sized companies, that are less risky than small cap and relatively riskier than large cap companies. Mid cap funds are a good option for those who are looking for funds without the small cap related risk and with greater return possibility.

An important note!

It is very important to do a good amount of research about the companies before investing in short or mid cap funds.

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Parul Mahajan is a Post Graduate in Gender Studies from Ambedkar University, Delhi and also holds a Bachelor of Arts degree in English Literature from Daulat Ram College, Delhi University. She is the author of ““Warring Over Religion and Feminism”, a Masters level Dissertation. Parul has also interned with Vimochana, a Bangalore based women’s organization working on various women’s issues.

2 COMMENTS

  1. Again this is a beautiful comparison blog. This is easier to understand, in simpler terms and nice language. But I hope that the blog will be more awesome if you could add some tabular classification to this one. This is a very clear blog that can be use as a reference. Nice write author!

  2. Small cap companies are the start-ups trying to establish themselves, with lot of talent but zero experience. The price for the large cap companies is higher, good for investment but volatility rate high and not everyone can invest. So comes the mid cap better than the start-ups and less expensive than high cap but volatility factor remains the same. The decision to invest lies solely to the investor’s choice.

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