Knowledge Base

Large, Mid and Small Market Capitalization Funds

Large, Mid and Small Market Capitalization Funds

Large cap, mid cap, and small caps are categories used to classify companies based on their market capitalization. Market capitalization (market cap) can be defined as the total value of a company's outstanding shares, calculated by multiplying the number of outstanding shares by the current market price of each share.

What is Large Cap, Mid Cap and Small Cap?

SEBI defines large cap, mid cap and small cap as follows:

  1. Large-cap stocks – 1st to 100th company in terms of full market capitalisation
  2. Mid-cap stocks – 101st to 250th company in terms of full market capitalisation
  3. Small-cap stocks – 251st company onwards in terms of full market capitalisation

[1] AMFI in consultation with SEBI and the stock exchanges has prepared a list of companies under each market capitalization viz., largecap, midcap and smallcap based on the data provided by Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and Metropolitan Stock Exchange of India (MSEI). This list can be found here.


Large Cap, Mid Cap and Small Cap Funds within the Mutual fund universe:

Primarily, the schemes are broadly classified into the following groups. Each of these groups have multiple different categories. The different groups of schemes are:

  • Equity Schemes
  • Debt Schemes
  • Hybrid Schemes
  • Solution-oriented Schemes
  • Other schemes 

Individual investors primarily hold equity-oriented schemes. As of Apr 2024, [2] 85% of individual investor assets were held in equity oriented schemes. As the name suggests, the schemes under the equity category invest majorly in equity and equity related instruments.

The large-cap, mid-cap and small cap funds are three categories that come under the Equity scheme. 

  1. Large cap fund: As the name suggests, a large-cap equity fund indicates that the fund invests predominantly in equity and equity related instruments of large cap companies. These are the top 100 companies in India, with the largest market capitalization. These companies may also be considered market leaders in the industry they belong to. 
  2. Mid cap fund: Mid Cap funds invest in equity and equity-related instruments of Mid Cap companies. Mid Cap companies are those that are ranked between 101 and 250 in the list of companies according to full market capitalization. 
  3. Small cap fund: Small Cap funds invest in equity and equity-related instruments of Small Cap companies. Small Cap companies are those that are ranked from 251st company and onwards according to full market capitalization.


Characteristics of Large Cap, Mid Cap and Small Cap Funds:

  1. Large Cap Fund:
    Minimum   investment   in   equity   & equity  related  instruments  of  large cap companies - 80% of total assets.
    [3] Large caps are usually characterized by lower volatility in the long term and tend to tide over phases of economic downturn relatively better than mid-caps and small cap stocks. From the data below we can look at the performance of large caps during the global financial crisis of 2008, followed by other calendar years such as 2011, and 2018, where large caps (represented through Nifty 100) have delivered better returns as compared to the mid-caps (represented through Nifty Midcap 150) and small caps (represented through Nifty Smallcap 250). 

Calendar Year

Nifty 100

Nifty Midcap 150

Nifty Smallcap 250

2006

40.2%

28.5%

32.9%

2007

59.5%

78.2%

97.4%

2008

-53.1%

-64.9%

-68.6%

2009

84.9%

113.9%

117.4%

2010

19.3%

20.1%

17.6%

2011

-24.9%

-31.0%

-35.1%

2012

32.5%

46.7%

40.4%

2013

7.9%

-1.3%

-6.4%

2014

34.9%

62.7%

71.7%

2015

-1.3%

9.7%

11.3%

2016

5.0%

6.5%

1.4%

2017

32.9%

55.7%

58.5%

2018

2.6%

-12.6%

-26.1%

2019

11.8%

0.6%

-7.3%

2020

16.1%

25.6%

26.5%

2021

26.4%

48.2%

63.3%

2022

4.9%

3.9%

-2.6%

2023

21.2%

44.6%

49.1%

  1. Mid Cap Fund:
    Minimum investment in equity and equity related instruments of mid cap companies - 65% of total assets. As we can see from the above data, during the phase of economic recoveries and mega bull runs, mid-caps may generally provide higher returns than their large-cap counterparts. 
  2. Small Cap Fund:
    Minimum investment in equity and equity related instruments of small cap companies - 65% of total assets. Small-Caps are considered to be more volatile than large caps and mid caps but may have the potential to provide higher returns than their large cap and mid cap counterparts.


Gaining exposure to large cap, mid cap and small cap market segments:

Investors can take exposure to large cap, mid cap and small cap market segments by purchasing individual shares of stock; through an exchange-traded fund, or ETF, that tracks an index based on large-cap/mid-cap/small-cap benchmark; or through one of the available index funds/ other mutual funds focused on large-cap/mid-cap/small-cap investments.
*At Zerodha Fund House, we offer Index Funds/ETFs that track benchmarks across different market capitalizations such as large cap and mid cap. To read more about them, you may visit the homepage of Zerodha Fund House.

Conclusion:

Each category (large cap/mid cap/small cap) offers unique opportunities and challenges. Please keep in mind that investing requires in-depth research and analysis. So, kindly stay informed and make decisions that align with your long-term financial objectives. By understanding these key factors, you can build a diversified portfolio that suits your individual needs and maximizes your potential for investment success. 

Disclaimer:* Please note that the details provided here represent current offerings and are subject to change. This information should not be viewed as financial advice or a recommendation to invest in Zerodha Mutual Fund schemes. Investors are encouraged to consult with their financial advisor for personalized investment advice.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully

Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.

Source:
[1]: Categorization of Large Cap, Mid Cap and Small Cap Stocks
[2]: Individual Investor assets held in equity schemes
[3]: Calendar year Performance of large caps, mid caps and small caps

Published on Jun 7 2024

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