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.