Are Mid Cap funds better than Small Cap funds? If yes, why?

Mutual fund investments are popular including midcap funds, albeit they come with some risk depending on which fund you are investing. Mid cap mutual fund is popular because it helps you beat inflation over a period. The investment experts opine one should base one’s investment decisions on one’s risk appetite, amount to invest, timeline and resource availability. One should check one’s investment goals too and when one needs the redemption of the deposit. There is a mutual fund calculator that gives one a credible perspective about investing and the amount to invest and so on. The investment goals are sometimes associated with the important events in one’s life.

Money may be needed for a child’s education or marriage. These have got a fixed time horizon. An investment in a somewhat safer mutual fund is well-advised. An investment in midcap fund is much safer than the one in small cap fund. The reasons are pretty obvious. Investment is small cap fund is riskier than that of in a midcap fund. A large cap fund is the one that gives slow and low return compared to midcap and small cap. The safety margin of large cap funds is quite high. So, an investment in large cap funds is safer and better than an investment in midcap and small cap funds. The large cap funds are the least volatile and the small cap are the most. The midcap remains in the middle.

Whenever you are on way to the mutual fund investment, you need to know your goal and how much time you have and your ability to digest risk. You should know why you should invest in midcap and small cap fund. Many investors have very limited knowledge about mutual fund investment world. The mutual funds are professionally managed fund that is invested in securities across equity, debt, call money, treasury bills, government or corporate bond and other related instruments. The fund manager understands the investment objective and accordingly sells or buys the assets.

There are further classification of mutual funds based on risk profile, market capitalization, size of the fund, and so on. The investment in the small cap fund is riskier than that in a midcap fund because of the volatility of the scheme. A small cap fund gives the highest return at low investment, and so it is lucrative. On the other hand the risk of losing money in small cap fund is more because of its highest volatility. An investment in the midcap fund is better and less risky. If you are an expert in the stock market, you may gain investing in the midcap fund. For you, small cap investment will be better than investment in the midcap. We should know what market capitalization is.

Market capitalization is the worth of the company, the company that is present in the market to be traded in the stock exchange. Market capitalization is calculated by the total number of shares multiplied with the number of shares of a stock. In short, it is known as market cap.

Large cap funds are open ended equity schemes that are invested mainly in the large cap stocks. The investment is done in those companies that have large market capitalization. These funds are the safest ones because the investments are done in the financially established companies. A large cap fund generally invests in 80 percent in equity of companies of large market capitalization.

There are midcap funds in India and a midcap fund is an open-ended equity that mainly invests in the midcap stocks. Here, a minimum of 60 percent is invested in the equity instruments of midcap companies. The small cap funds, according to SEBI, are open-ended equity scheme mainly investing in small cap.

Midcap and small cap funds garner capital gains in the long term by dint of investing in equity of companies with small and medium market capitalization. And investment in midcap and small cap segments are flexible in which the investors are not forced to cling on to the investments in them. There is an advantage here. In case the midcap and large cap companies are performing below par, one can buy more number of shares at lesser prices. When it comes to deciding between investment in midcap and small cap, an investment in midcap is better. The reason is that investment is small cap market capitalization is the worst in terms of volatility. So, one should play safer and select a midcap option compared to a small cap option.