Mistakes To Avoid While Investing in Large and Small Cap Funds

When investing in equity mutual funds, one of the key decisions is choosing between large-cap, mid-cap, and small-cap funds. The market capitalization, or size, of the companies a fund invests in defines these categories. Understanding the difference can help you make informed mutual fund selections.

  • Large Cap Funds

A large-cap mutual fund invests predominantly in large-cap stocks. These are the shares of companies with the highest market capitalization, generally over Rs 20,000 crore. Large-cap companies are typically leaders in their industry and have seen stable growth over long periods. Some examples of large Indian companies include Reliance, HDFC Bank, TCS, Infosys, and ITC. The large cap fund category includes some of the most popular mutual funds, like the SBI Bluechip Fund, the Axis Bluechip Fund, and more.

Key Features of Large-Cap Funds

Large-cap mutual funds provide exposure to established companies with strong brands and financials. The large-cap fund invests across sectors, selecting companies with leadership positions. These funds tend to be relatively less volatile compared to other fund types since large caps are less prone to wild price swings. Large-cap funds suit investors looking for stability and steady long-term growth. They can deliver moderate yet consistent returns over time.

  • Mid-Cap Funds

Mid-cap mutual funds predominantly invest in mid-sized companies with a market cap typically between Rs 5,000 and Rs 20,000 crore. Mid-cap companies often operate in high-growth industries and aim to expand their market share. Some leading mid-cap stocks include HDFC AMC, Indraprastha Gas, Info Edge, and more.

Characteristics of Mid-Cap Funds

Compared to large caps, mid-cap funds tend to be more volatile as mid-cap stocks react more sharply to market changes. However, mid-cap companies have substantial room for growth. Mid-cap funds aim to tap into this growth potential. They offer opportunities for higher returns compared to large-cap funds but involve moderately higher risk. Mid-cap funds suit investors willing to accept some volatility in pursuit of greater long-term returns.

  • Small-Cap Funds

As the name suggests, small-cap mutual funds invest predominantly in smaller companies with a market cap under Rs 5,000 crore. Small caps are in early growth stages and operate in emerging sectors. As companies grow, small caps can turn into mid- or large caps over time. Some top small-cap stocks are Dixon Technologies, Aarti Industries, and Affle India.

 Key Aspects of Small-Cap Funds

Among equity funds, small-cap funds are the most aggressive, with the highest potential returns as well as the highest risk. Small-cap companies see the widest price movements based on growth prospects. Small caps have greater growth runways and reward patient investors over the long term. The best small cap mutual funds suit investors with very high-risk tolerance and the ability to patiently withstand volatility.


In conclusion, large, mid, and small-cap mutual funds differ in the market cap of the stocks they invest in. Large-cap funds provide stability, while small-cap funds offer growth. Your risk appetite and investment horizon should guide your mutual fund category selection. Leading fund houses offer strong options across market cap categories.



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