Last Updated on Jul 30, 2024 by Anjali Chourasiya
Mutual funds can be a great way to invest your money in the stock market, but with so many options available, it can be challenging to choose the right one. One way to simplify the process is to categorise mutual funds based on market capitalisation. Large-cap, mid-cap, small-cap, multi-cap, and flexi-cap are terms you may have heard before, but do you know what they mean?
In this blog, we’ll explore different equity mutual funds by market capitalisation –
Table of Contents
Equity mutual funds based on market capitalisation
Equity mutual funds invest in companies based on their market capitalisation. It is primarily classified into five funds –
- Large-cap funds
- Mid-cap funds
- Small-cap funds
- Multi-cap funds
- Flexi-cap funds
What are large-cap funds?
Large-cap funds invest primarily in companies with the largest market capitalisation. In other words, these funds invest in companies ranked from 1 to 100 on the Indian stock exchange in terms of market cap. According to SEBI, large-cap funds must allocate at least 80% of the funds’ total assets to both – equity and equity-related instruments of large-cap companies.
Advantages of investing in large-cap funds
- Established Companies
Large-cap funds invest in rock-solid companies, market leaders of their segment, and behemoths with solid fundamentals.
- Stability
Large-cap funds are more stable than small and mid-cap funds, making them a good option for risk-averse investors.
- Consistent returns
Due to their stability, large-cap funds are known to produce consistent returns.
- Long-term investment
They are suitable for investors with long-term financial goals, like retirement or children’s college fees, because these funds deliver consistent returns in the long run.
- Lower Volatility
Large-cap funds tend to be less volatile than small and mid-cap funds, which are more prone to market fluctuation.
Disadvantages of investing in large-cap funds
- Limited Diversity
While large-cap funds may offer diversification within the large-cap companies, they may not provide exposure to small or mid-cap companies that may generate higher returns in the short term.
- Lower Returns
Large-cap funds may provide lower returns than smaller-cap funds, as they have already experienced significant growth and may have less room for further appreciation.
List of best large-cap funds in India (2024)
Large-cap fund | AUM (Rs. in cr.) | CAGR 3Y (%) | CAGR 5Y (%) | NAV (Rs.) |
Nippon India Large Cap Fund | 12,524.53 | 28.52 | 12.21 | 59.99 |
HDFC Top 100 Fund | 22,139.22 | 26.37 | 11.51 | 796.15 |
ICICI Pru Bluechip Fund | 34,679.35 | 25.84 | 11.78 | 73.95 |
SBI BlueChip Fund | 34,042.09 | 25.78 | 11.08 | 68.99 |
Kotak Bluechip Fund | 5,375.91 | 25.50 | 12.30 | 421.01 |
Tata Large Cap Fund | 1,381.02 | 25.09 | 10.89 | 374.63 |
Edelweiss Large Cap Fund | 407.27 | 24.96 | 12.37 | 62.2 |
IDBI India Top 100 Equity Fund | 599.73 | 24.95 | 12.06 | 44.24 |
Aditya Birla SL Frontline Equity Fund | 21,126.36 | 24.43 | 10.23 | 372.32 |
Mahindra Manulife Large Cap Fund | 215.63 | 24.16 | 0 | 16.53 |
Note: The data is from 20th April 2023. It is filtered using Tickertape Mutual Fund Screener with the following parameters-
- Category: Large-cap fund
- AUM (Assets Under Management)
- 3-yr CAGR: Set to high (Sort from high to low)
- 5-yr CAGR
- NAV (Net Asset Value)
What are mid-cap funds?
Mid-cap funds invest in companies’ equity with a market capitalisation of between Rs. 5,000 cr. to Rs. 20,000 cr. The mid-cap companies rank 101-250 regarding market capitalisation in an index. According to SEBI, mid-cap funds must allocate at least 65% of total fund assets to equity and equity-related instruments for mid-cap companies.
Advantages of investing in mid-cap funds
- Long-term Returns
Investing in mid-cap mutual funds can be advantageous for generating wealth in the long term due to the stable business model and growth potential of mid-cap companies.
- Risk Diversification
Diversifying your investments across various sectors and stocks can protect your capital from the harmful effects of volatility. For example, investing in mid-cap mutual funds can provide diversification as they invest in multiple sectors, which can reduce risk exposure.
- Expert Management
Mid-cap mutual funds are managed by expert fund managers recruited by AMCs to develop research teams, providing investors with the expertise of these professionals for free.
- Low Initial Investment
Mid-cap mutual funds offer a low investment amount starting from Rs. 500 for SIP or Systematic Investment Plan and Rs. 5,000 for lump sum investments, enabling investors to start with a small amount and gradually increase their investment.
Disadvantages of investing in mid-cap funds
- Investment Risks
Like any other stock or mutual fund, mid-cap mutual funds carry the risk of capital loss. These funds are vulnerable to the volatility of the capital market, and events like geopolitical tensions can result in a drop in the concerned mutual funds’ value as investors withdraw their funds.
- Taxation
Mutual fund investors are subjected to three types of taxes, namely Long-Term Capital Gains Tax (LTCG), which applies to withdrawals made after one year from the investment date; Short-Term Capital Gains Tax (STCG), which applies to withdrawals made before one year from the investment date, and taxes on dividends. In addition, dividend income is added to your gross income and taxed accordingly.
- Costs
Investing in a mid-cap mutual fund can entail two types of fees: exit load that applies to withdrawals made before one year and expense fees that apply to all investments and are deducted annually.
List of best mid-cap funds in India (2024)
Mid-cap fund | AUM (Rs. in cr.) | CAGR 3Y (%) | CAGR 5Y (%) | NAV (Rs.) |
Quant Mid Cap Fund | 1,665.49 | 41.09 | 19.74 | 142.77 |
PGIM India Midcap Opp Fund | 7,707.73 | 40.06 | 17.66 | 47.62 |
SBI Magnum Midcap Fund | 8,733.51 | 38.37 | 13.22 | 162.15 |
Motilal Oswal Midcap Fund | 3,800.72 | 37.47 | 15.65 | 56.66 |
Edelweiss Mid Cap Fund | 2,530.97 | 35.12 | 13.25 | 58.86 |
Kotak Emerging Equity Fund | 24,406.71 | 34.55 | 14.40 | 85.49 |
Mirae Asset Midcap Fund | 8,851.82 | 34.27 | 0 | 21.94 |
Nippon India Growth Fund | 13,420.40 | 33.84 | 14.26 | 2,310.85 |
ICICI Pru Midcap Fund | 3,514.54 | 32.97 | 10.43 | 177.88 |
Mahindra Manulife Mid Cap Fund | 1,060.84 | 30.59 | 13.98 | 19.28 |
Note: The data is from 20th April 2023. It is filtered using Tickertape Mutual Fund Screener with the following parameters-
- Category: Mid-cap fund
- AUM (Assets Under Management)
- 3-yr CAGR: Set to high (Sort from high to low)
- 5-yr CAGR
- NAV (Net Asset Value)
What are small-cap funds?
Small-cap funds invest in companies’ equity with a market capitalisation of under Rs. 5,000 cr. Small-cap companies start from 250th in the index in terms of market capitalisation. According to SEBI, small-cap funds must allocate at least 65% of total asset funds in small-cap companies.
Small-cap funds are ideally suited for investors who want to take a high risk with their capital and are comfortable with overall volatility in their positions.
Advantages of investing in small-cap funds
- Higher Returns
These types of mutual funds are suited for investors who want to take a high risk with their capital and, in turn, expect their corpus to multiply at a meteoric rate. Typically small-cap companies grow faster than mid-cap companies.
- Better Diversification
Small-cap stocks offer much-needed risk diversification in portfolios dominated by large-cap and index companies. In addition, small-cap funds invest in companies from different industrial sectors like IT, banking/financial, automotive, FMCG, and more, which could be more prominent in the large-cap and mid-cap categories.
Disadvantages of investing in a small-cap fund
- Risky investment
Small-cap funds are considered more risky and volatile than large and mid-cap funds due to their high exposure to high-performing equities. As a result, these funds are unsuitable for all investors and are best suited for those with a high-risk appetite or seasoned investors.
- High reliability on the fund manager
The success of small-cap funds depends on the amount of time invested by the fund house in researching and finding the right stocks in the small-cap segment. Hence, choosing the right fund house with an experienced fund manager is crucial.
List of best small-cap funds in India (2023)
Small-cap fund | AUM (Rs. in cr.) | CAGR 3Y (%) | CAGR 5Y (%) | NAV (Rs.) |
Quant Small Cap Fund | 3,578.84 | 63.85 | 24.13 | 152.03 |
Nippon India Small Cap Fund | 23,910.18 | 46.94 | 16.44 | 103.50 |
Canara Rob Small Cap Fund | 4,831.89 | 45.76 | 0 | 25.86 |
HSBC Small Cap Fund | 8,625.96 | 44.23 | 12.69 | 52.97 |
Kotak Small Cap Fund | 8,672.23 | 43.46 | 16.45 | 184.52 |
Tata Small Cap Fund | 3,512.34 | 43.31 | 0 | 25.77 |
HDFC Small Cap Fund | 14,962.63 | 42.85 | 13.04 | 90.82 |
ICICI Pru Smallcap Fund | 4,761.82 | 42.57 | 14.65 | 58.63 |
Sundaram Emerging Small Cap-Sr-III | 297.64 | 42.50 | 0 | 19.83 |
Sundaram Emerging Small Cap-Sr-V | 79.72 | 42.37 | 0 | 20.73 |
Note: The data is from 20th April 2023. It is filtered using Tickertape Mutual Fund Screener with the following parameters-
- Category: Small-cap fund
- AUM (Assets Under Management)
- 3-yr CAGR: Set to high (Sort from high to low)
- 5-yr CAGR
- NAV (Net Asset Value)
What are multi-cap funds?
Multi-cap funds offer the benefits of diversification of investment in equity shares of large-cap, mid-cap, and small-cap companies. As per the SEBI guidelines, multi-cap funds must invest at least 25% of their corpus in large-cap, mid-cap, and small-cap companies. The remaining 25% allocation depends on the discretion of the fund manager.
Multi-cap funds are suitable for investors who want to diversify their investments across sectors and reduce risk.
Advantages of investing in multi-cap funds
- Diversified portfolio
Investing in multi-cap funds can offer a diversified portfolio and reduce risk compared to investing in a single sector or market cap category.
- Exposure to high-growth companies
Multi-cap funds provide exposure to high-growth industries, regardless of their market capitalisation, which can help to avoid missing out on opportunities.
- Highly flexible
These funds allow flexibility in changing the portfolio composition between large, mid, and small-cap based on market conditions.
- Stability
Due to their diverse portfolio, multi-cap funds may provide better stability during market volatility.
Disadvantages of investing in multi-cap funds –
- Active Management Risk
The performance of multi-cap funds is totally dependent on the expertise and experience of the fund managers, which can vary and impact returns.
- Concentrated Portfolio
Multi-cap funds may have a more concentrated portfolio, which can increase the risk of exposure to a single company or industry.
- Rebalancing
Multi-cap funds may drift away from their stated investment style to rebalance or adjust the portfolio allocation based on market conditions, which can impact returns.
- Less Focused
Multi-cap funds invest in companies of different sizes and across multiple sectors. This may result in a less focused investment strategy than funds that specialise in a specific market segment or industry.
List of best multi-cap funds in India (2024)
Multi-cap fund | AUM (Rs. in cr.) | CAGR 3Y (%) | CAGR 5Y (%) | NAV (Rs.) |
Quant Active Fund | 3,687.61 | 41.32 | 19.96 | 451.55 |
Kotak India Growth Fund-Sr 4 | 90.54 | 34.016 | 15.22 | 20.97 |
Nippon India Multi Cap Fund | 14,091.96 | 33.68 | 12.82 | 178.48 |
Mahindra Manulife Multi Cap Fund | 1,574.95 | 30.44 | 15.06 | 22.59 |
Baroda BNP Paribas Multi Cap Fund | 1,610.32 | 28.67 | 11.99 | 186.41 |
Sundaram Multi Cap Fund | 1,784.63 | 28.03 | 10.71 | 253.01 |
ICICI Pru Multicap Fund | 6,929.06 | 26.79 | 11.66 | 501.98 |
Invesco India Multicap Fund | 2,347.89 | 26.12 | 9.80 | 89.34 |
Sundaram Multi Cap Fund-Sr II | 84.67 | 24.23 | 0 | 17.66 |
Sundaram Multi Cap Fund-Sr I | 144.03 | 24.01 | 0 | 17.59 |
Note: The data is from 20th April 2023. It is filtered using Tickertape Mutual Fund Screener with the following parameters-
- Category: Multi-cap fund
- AUM (Assets Under Management)
- 3-yr CAGR: Set to high (Sort from high to low)
- 5-yr CAGR
- NAV (Net Asset Value)
What are flexi-cap funds?
Similar to multi-cap funds, flexi-cap funds can invest in companies of any market capitalisation size. However, with flexi-cap funds, the fund manager has the flexibility to avoid mid and small-cap stocks if they want entirely. In addition, it allows the fund manager the freedom to allocate a more significant portion of their portfolio to large-cap stocks when necessary, let’s say, in the event of an economic meltdown.
In flexi-cap funds, there are no fixed limits on the percentage of funds that the fund manager can allocate to each category, whether large-cap, mid-cap, or small-cap.
Advantages of investing in flexi-cap funds
- Diversified portfolio
Flexi-cap funds allow fund managers to invest in stocks of different market capitalisations and sectors, thus providing a diversified portfolio to investors.
- Flexible
Asset allocation flexibility enables fund managers to balance risk and return effectively, as they can buy and sell stocks of various market caps based on market scenarios.
- Less risky
The diversified portfolio of flexi-cap funds helps in higher capital protection, thereby reducing the overall risk of the investment.
- High growth potential
Being an equity fund, flexi-cap funds have the potential to beat market inflation and generate significant returns in the long run, making them suitable for achieving long-term financial goals.
Disadvantages of investing in flexi-cap funds
- Investment across multiple caps
Flexi-cap funds invest across market capitalisations, which makes them riskier than large-cap funds but less risky than small and mid-cap funds.
- Heavy reliance on funds managers
Fund managers can change the portfolio allocations at any time, so ensuring that their objectives for handling risk and returns align with your financial goals is crucial.
List of best flexi-cap funds in India (2024)
Flexi-cap fund | AUM (Rs. in cr.) | CAGR 3Y (%) | CAGR 5Y (%) | NAV (Rs.) |
Quant Flexi Cap Fund | 1,044.80 | 42.01 | 18.05 | 65.30 |
HDFC Flexi Cap Fund | 31,892.77 | 31.72 | 13.72 | 1,222.72 |
PGIM India Flexi Cap Fund | 5,199.03 | 30.71 | 15.01 | 27.94 |
Parag Parikh Flexi Cap Fund | 31,290.25 | 30.67 | 18.06 | 54.52 |
Franklin India Flexi Cap Fund | 9,989.33 | 29.47 | 11.76 | 1,066.39 |
Edelweiss Flexi Cap Fund | 1,056.03 | 26.58 | 11.46 | 25.64 |
Union Flexi Cap Fund | 1,339.95 | 26.01 | 12.60 | 35.64 |
Navi Flexi Cap Fund | 200.71 | 25.01 | 0 | 17.48 |
HSBC Flexi Cap Fund | 3,116.05 | 24.88 | 8.96 | 142.14 |
IDBI Flexi Cap Fund | 351.06 | 24.73 | 10.84 | 38.11 |
Note: The data is from 20th April 2023. It is filtered using Tickertape Mutual Fund Screener with the following parameters-
- Category: Flexi-cap fund
- AUM (Assets Under Management)
- 3-yr CAGR: Set to high (Sort from high to low)
- 5-yr CAGR
- NAV (Net Asset Value)
Tax implications on equity mutual funds
Investing in equity mutual funds can have tax implications for investors, which depend on several variables. These variables include –
- Types of Funds
Mutual funds are classified as equity-oriented and debt-oriented funds for tax purposes.
- Capital Gains
When an investor sells a capital asset for more than its cost, it results in a capital gain.
Dividends are a portion of profits that mutual fund houses distribute to investors.
- Holding Period
The tax liability on capital gains depends on the holding period of the investment.
- Equity Funds Holding Period
The holding period for short-term capital gains (STCG) is less than 12 months, and for long-term capital gains (LTCG) is longer than 12 months.
Now, let’s look at how these funds are taxed.
Short-Term Capital Gains (STCG)
If you hold equity mutual funds for less than a year, the gains from these investments are classified as short-term capital gains. According to the new budget, these gains are now taxed at a rate of 20%, which has been increased from the previous rate of 15%.
Long-Term Capital Gains (LTCG)
For equity mutual funds held for more than a year, the gains are considered long-term capital gains. The key points to note under the new budget are:
- Tax-Free Limit: Gains up to Rs. 1.25 lakh in a financial year remain tax-free. This limit has been increased from the previous threshold of Rs. 1 lakh.
- Tax Rate: Any gains above Rs. 1.25 lakh are taxed at a flat rate of 12.5%. It was previously taxed at 10%.
- Indexation: It’s important to note that the benefit of indexation, which previously allowed investors to adjust the purchase price of their assets for inflation, has been removed for all asset classes, including equity mutual funds.
- Indexation is a method used to adjust the purchase price of an asset (like property or gold) for inflation over the years. This adjusted price is then used to calculate capital gains.
Summary of taxation on Equity Mutual Funds
Capital Gains Tax | Holding Period | Old Rate | New Rate |
Short-Term Capital Gains (STCG) | Less than 12 months | 15% | 20% |
Long-Term Capital Gains (LTCG) | More than 12 months | 10% | 12.50% |
In conclusion, investors in equity mutual funds should consider these tax implications to make informed decisions and manage their tax liabilities effectively.
Conclusion
We have discussed at length the basis for mutual fund classification concerning market capitalisation. But is this method the ideal baseline for picking a fund? The answer lies in the concept of risk-reward optimisation. Choosing a mutual fund based on its market cap ensures that you pick the appropriately sized fund. In doing so, you mitigate the risk, help you align with your financial goals, and plan your investments accordingly.
FAQs
Is it safe to invest in small-cap funds?
Investing in small-cap funds involves higher risk compared to large-cap funds. While they have the potential to generate higher returns, they are also subjected to higher volatility. Therefore, consider your investment goals and risk tolerance before investing.
How to identify the best mid-cap funds on Tickertape Mutual Fund Screener?
There are multiple ways to find the best mid-cap fund on Tickertape Mutual Fund Screener. By adding filters such as 3-yr CAGR, Expense Ratio, PE Ratio, Volatility, etc., you can evaluate the performance of the mutual funds and make an informed decision.
Which mutual fund is best suited for short-term investment?
There is no one-size-fits-all answer to this question, as the best mutual fund for short-term investment will depend on an individual’s investment goals, risk tolerance, and other factors. Therefore, consulting with a financial advisor is recommended to determine the best option.
What’s the difference between a flexi-cap fund and a multi-cap fund?
Flexi-cap funds have no restrictions on the allocation of funds to market capitalisation segments. In contrast, multi-cap funds must invest in companies across different capitalisations, such as large-cap, mid-cap, and small-cap stocks.
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