Investing in mutual funds are among the popular investment options that offer substantial returns. A little research into the financials of companies in a fund’s portfolio can go a long way to help you increase your wealth. A mutual fund is a very vast topic that has several categories. Based on the market capitalisation of the companies in a fund’s portfolio, mutual funds may be classified as large-cap mutual funds, mid-cap mutual funds and small-cap mutual funds. Both large cap and small cap funds have their own set of attractions. If you are wondering which to invest in, this article is for you.
Large Cap Mutual Funds
- Companies whose stocks value Rs. 10,000 crore or more make up the large-cap mutual funds. These stocks have a reputation of being the strong players in the market.
- Since only the well-established companies constitute a large-cap mutual fund portfolio, they are a safer bet than upcoming companies
- Their business models are tried and tested to earn returns. Investing in large-cap mutual funds ensures regular dividends and therefore is a secure form of investment.
- Long-term investments in large-cap mutual funds are best for wealth accumulation.
- Returns are lower compared to small-cap mutual funds.
- They are not suitable if you are looking to outperform the market.
- Large-cap mutual funds yield better returns if you buy and hold the stocks. Therefore, passive management of the fund is better suited for this type of mutual funds.
Small Cap Mutual Funds
- Small-cap mutual funds comprise of companies whose stock cost less than Rs. 2,000 crore.
- Small companies have a promising business model and higher growth potential, which can yield high returns.
- Investments in this type of mutual funds allow aggressive financial growth of the investors.
- Small-cap mutual funds perform best for medium to long-term investments.
- These stocks are highly volatile and fluctuate drastically
- These stocks are therefore suitable for investors who want to outperform the market and have a high appetite for risks.
Investing in mutual funds should depend on your appetite for risks and financial expectations from the investment. To sum it up, small-cap mutual funds promise higher returns than large-cap funds. However, with great gains, you can expect greater risks. So, if you are looking for a source of regular income without the additional headache of risks, large-cap mutual funds should be your choice. If you have an appetite for risks and want to do better than the market, you should invest in small-cap mutual funds.
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