Difference Between Large Cap vs Mid Cap Mutual Fund

When it comes to investing in mutual funds, you will find multiple options at once. Each of these options offers you a different risk and return ratio. At the same time, the asset allocation for these funds differs as well. While some focus on equity or debt, there are a few funds that invest in both assets to offer a better balance. 

But there are two types of funds that are usually considered more if you are looking for stable returns. These are the mid-cap and large-cap funds. Though both these invest in the equity, there are certain differences between them that you must know.

So, if you are new to investing and looking to know the details, then read this guide. Explore the mid-cap vs large-cap details and understand which of these is a better choice of investment for you. 

What Is a Large-Cap Fund?

A large-cap fund is a type of equity mutual fund. It is the one that invests primarily in companies with a large market capitalization. These are the top 100 companies that are listed on the stock exchange. The main reason for the selection of these companies is their history and strong performance.

These companies have a proven record of performance, which makes them a better choice. But at the same time, these are the ones that have reached the top, hence at times you will find less potential for growth.

Key Features of Large Cap Funds

• Stable Returns: The fund mainly focuses on the financially sound companies. This ensures that the investors get a steady long-term growth potential.
• Lower Volatility: Most of the companies in the large-cap segment are not affected by market fluctuations. This makes them a safer choice when compared to mid and small-cap funds.
• High Liquidity: Shares of large-cap companies are actively traded. This ensures that the trader can enter or exit the market easily at any time with no hassle.
• Consistent Dividends: Many large-cap companies offer regular dividends. This is an additional income to the profits that the investors make.
• Suitable for Long-Term Investors: These funds are better for those who invest for a long time. These funds offer stability and have comparatively low risk. Hence, if you invest with the aim of wealth creation, these are better.
• SEBI Guideline: The large-cap funds must invest at least 80% of their assets in the top 100 companies by market capitalization.

What Is a Mid-Cap Fund?

A mid-cap fund is another type of equity mutual fund. This is the fund that invests in medium-sized companies. Now, if you see, these are the next best set of companies. As per market capitalization, they rank between 101 and 250 on the stock exchange.

These companies are still growing. They might be with the plans of expansion or with some innovative ideas. Hence, the potential is more. But at the same time, the risk is high as well. Any change in the market conditions can impact these companies greatly. This can lead to losses.

Key Features of Mid-Cap Funds

• High Growth Potential: This is the fund that mainly invests in companies that are in their growing stage. This is why the fund can deliver higher returns over time.
• Moderate to High Risk: Mid-cap stocks can fluctuate more. This can be due to market sentiment and business performance. This increases the overall risk associated with the investment.
• Diversified Portfolio: Investing in these funds helps the investors benefit from exposure. This is mainly across emerging industries and sectors, which can be great.
• Ideal for Long-Term Goals: These funds work best for investors with a longer investment horizon. The risk is high and so it is not good for conservative investors. 
• SEBI Mandate: Mid-cap funds are required to invest at least 65% of their assets in companies ranked from 101 to 250 by market capitalization.

Read Also: Difference Between Large Cap, Mid Cap, And Small Cap Funds?

Pros and Cons of Large Cap Funds

When investing in the large-cap funds, you focus on long-term growth and low risk. But there are other pros and cons to know. These are as follows:

Pros of Large Cap Funds

• Companies with a proven record and performance are included.
• Good for offering steady and reliable returns.
• Considered to be the funds with low risk involved.
• They are very liquid, which makes entry and exit simpler.
• Better for conservative and long-term investors.

Cons of Large Cap Funds

• Moderate returns as compared to other funds.
• Growth potential is limited and low.
• Performance may slow down during market rallies led by smaller stocks.

Pros and Cons of Mid-Cap Funds

Just like any other fund, investing in mid-cap funds also comes with certain risks and challenges. Knowing them can help you make the right investment call and ensure that you make good profits. So, here are the top ones to know.

Pros of Mid-Cap Funds

• High growth potential based on future plans.
• Allows for earning a higher rate of returns in a bullish market.
• Provides for better diversification.
• Chance to invest in innovative schemes and ideas.
• Good option for investors seeking capital appreciation over time.

Cons for Mid Cap Funds

• Quite volatile and risky in nature.
• Recovery in case of a downturn is long.
• Liquidity can be lower as mid-cap stocks are less frequently traded.

Read Also: Equity Mutual Funds: Meaning, Types & Features

Large Cap vs Mid Cap Funds: Key Differences

Now that you know what the large-cap and mid-cap funds are, the next step is to find the difference. Knowing the difference will ensure that your investment calls are based on proper understanding and analysis.

So, here is the large-cap vs mid-cap difference that you should know.

Basis	Large Cap Funds	Mid Cap Funds
Market Capitalization	Invest in the top 100 companies with large market capitalization	Invest in companies ranked 101 to 250 by market capitalization
Risk Level	Lower risk due to stable and established businesses	Moderate to high risk as companies are still in the growth phase
Return Potential	Offer steady but moderate returns	Can deliver higher returns during favorable market conditions
Volatility	Less volatile and more stable during any  downturns	More volatile and sensitive to market movements
Liquidity	High liquidity, as large-cap stocks are actively traded	Moderate liquidity since mid-cap stocks are less traded
Investment Horizon	Ideal for long-term investors seeking stability	Suitable for long term investors with a higher risk appetite
Suitable For	Conservative investors looking for steady growth	Aggressive investors aiming for higher capital appreciation

Which Is Better – Large Cap or Mid Cap Fund?

When it comes to selecting between the large-cap and mid-cap funds, there are various factors that you need to consider. Of these, the key ones include:

• Profit potential
• Patience of the investor
• Risk taking capacity

So, if the investor prefers stability and low risk, then the large-cap is a better choice. The growth would be slow, but there will be stability. But if you prefer faster growth with moderate high risk, then you can go for the mid-cap funds as well. There will be fluctuations, and so it will require better monitoring as well.

In short:

• Choose large-cap funds for safety and stability.
• Choose mid-cap funds for growth and higher return potential.

Read Also: NFO Alert: PGIM India Large & Mid Cap Fund

Conclusion

Both large-cap and mid-cap funds are a great choice for investment. Where one offers you stability, the other gives you speedy growth. But when it comes to selecting anyone, it will be based on the choice of the investor themselves. 

But if you are new to investing and are looking to develop a balanced portfolio, then ensure to include both. You must be wondering why? Well, combining both will offer you moderate risk and moderate returns. Where one will help you with wealth creation, the other will guide you to faster results.

But yes, as said before, it is important that you start right and with expert guidance. This is where you can opt for Pocketful. Open your account today. Get expert support as you need. Ensure you make the right investments through your journey. 

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