mutual fund
The number of mutual fund investors has reached crores. However, despite this, still very few investors have deep knowledge about any MF fund. Many investors choose and invest in mutual fund schemes on the advice of their friends, relatives or fund agents. Therefore, today we are giving you the basic information related to mutual funds, which every investor should know. We are telling you the major differences between small cap funds and large cap funds.
What is small cap fund?
Small-cap mutual funds are equity funds that invest primarily in smaller-sized companies. These companies differ from the top 250 companies listed on stock exchanges in terms of market capitalization. Due to their smaller size, these companies have substantial growth potential, but these companies tend to have more volatility and risk than mid- and large-cap companies.
Large Cap Mutual Fund
Large cap mutual funds are those mutual funds which invest in big companies of the country. These companies are ranked based on their market capitalization, and their main objective is to provide investors with stable returns and low levels of risk.
Main differences between large-cap and small-cap funds
market capitalization
Large-cap: As per SEBI rules, large-cap mutual funds have to invest at least 80% of their corpus in large-cap stocks. Small-cap: As per SEBI rules, small-cap mutual funds have to invest at least 65% of their corpus in small-cap stocks.
Risk and Volatility
Large-cap: Compared to mid-cap and small-cap mutual funds, large-cap mutual funds are considered relatively safe and less volatile due to the stability of the companies. Small-cap: Compared to large-cap mutual funds, small-caps have relatively higher risk and are more volatile. This is because small-caps are more sensitive to market fluctuations and economic recessions.
growth potential
Large-cap: Compared to small-cap mutual funds, large-cap mutual funds offer stable returns and lower risk. Small-cap: Compared to large-cap mutual funds, small-cap mutual funds have higher growth potential.
liquidity
Large-Cap: Large-cap mutual funds invest in large-cap stocks. Since these stocks are frequently traded, they have good liquidity. Small-cap: Small-cap mutual funds invest in relatively less liquid stocks that have lower trading volumes, which can make buying and selling shares more challenging.
Which one to choose?
Large-cap: Large-cap mutual funds are suitable for investors with medium to long term horizons. Small-cap: Small-cap mutual funds are best suited for investors with long-term investments, typically seven years or more.
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