Large cap vs mid cap vs small cap: Investments in which market cap would suit you best?
When you invest in stocks or equity mutual funds, you must have come across the term market capitalisation. This reflects the size of the company in the stock market. Market capitalisation (or market cap) is the total market value of a company’s outstanding equity shares in the market. Based on their market cap, companies can be classified into large-caps, mid-caps or small-cap companies.
Source:CIEL,Feb 3rd to Feb 9th, 2024
Large-cap companies are big and well-known, with steady profits and low risk. Their stock prices don’t fluctuate very frequently, so they are good for people who want safe investments. If you want steady growth without much worry, large-cap stocks are a good choice.. As per SEBI rules, large-cap companies are defined as companies which have a market capitalisation of Rs 20,000 crore or more. Reliance, Infosys, Tata, etc, are some examples of large-cap companies.
Mid-cap companies are not too big or too small, meaning that they have ample room to grow. They offer a mix of good growth and some safety. If you’re okay with some risk to possibly earn more money, mid-cap stocks are a good option for building wealth. These companies have the potential to grow into large-cap companies in the long run. According to SEBI, companies with a market cap of not less than Rs 5,000 crore but not more than Rs 20,000 crore are classified as mid-cap companies.
Small-cap companies are emerging companies and potential growth engines in the making. They can multiply wealth faster, but are also the most volatile and prone to market swings. If you’re a young investor with a long horizon and can stomach short-term ups and downs, small caps might be right for you. As SEBI says, any company which has a market capitalisation of less than Rs 5,000 crore is classified as a small-cap company.
Buying a car soon? Choose safer large-cap stocks, since you might need the funds soon. Planning a wedding or any other specific financial goal in a few years? Mid-cap stocks can help. For building your retirement corpus or long-term wealth, include some small-cap stocks and be patient, over a period of 15-20 years. But don’t forget to spread your money, i.e. diversify your investments around to lower the overall risk.
Instead of choosing just one, combine large, mid, and small caps based on your risk appetite. SIPs in equity mutual funds across categories give you growth with balance. Remember: higher returns need time and tolerance for market volatility. You can also consider investing in multi-asset mutual funds to combine all market caps across a single investment.
