classification of mutual funds

Classification of mutual funds based on market capitalization

Mutual funds are available in many forms. In term of returns, equity oriented mutual funds are considered to be good then other funds.

In this article I am going to describe mutual funds based on their market capitalization.

Market Cap= Number of outstanding shares*Current market price of the share.

Large Cap Funds

  • Major investment of large cap mutual funds is in large cap companies whose market cap $10 billion and above. Rest small portion of investment is in small and mid-cap stocks.
  • Risk grade of large cap funds is comparatively less than mid and small cap mutual funds.
  • Return grade is less than mid cap and small cap mutual funds.
  • This types of funds invest in growth companies like ITC , HUL, Avenue supermarket.
  • Downside risk is very less as this companies are already very developed and upside movement is also not that much
  • Investors who want consistent return should choose this funds.

Mid cap Funds

  • Major portion of investment is in mid cap companies whose market cap between  $2 billion and $10 billion. Rest part is invested in large and small cap companies.
  • Risk grade is comparatively less than small cap funds and greater than large cap funds.
  • Return grade is less than small cap funds and greater than large cap mutual funds.
  • Investors who want mediocre risk in their portfolio and more return than large cap funds  should consider this types of funds.

Small cap funds

  • Major investment is in small cap companies whose market cap is less than $2 billion. Rest small portion of investment is in large and mid-cap companies.
  • Risk and return grade of small cap funds is highest.
  • Small cap funds are more volatile than large and mid-cap funds as they invest in small cap companies who are young and in developing stage.
  • Return grade is also higher because small cap companies have significant growth potential.
  • If you are aggressive investor then and only then you should select this fund.

There is simple funda: The more risk you bear, the more return you would earn.  

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