Market Capitalisation: large cap, mid cap, small cap India

What is market capitalization?

Market Capitalization of any company can be defined as the market value of all outstanding shares of that specific company. By multiplying the outstanding shares of the company with the market price of each share we can get the value. The companies use market capitalization to show the size of a company. It is important because company size is a basic element of various characteristics in which investors are interested, including risk. It is easy to calculate.we will discuss the Large-cap, Mid-cap, and Small-cap in this article in detail.

Market Capitalization= Current Stock Price x Number of outstanding shares

In terms of risk

Large Cap funds

Large Caps funds have a large amount of market capitalization. Securities and Exchange Board of India (SEBI) provides the definition of large-caps as the largest 100 companies in terms of market capitalization. Generally, this means NIFTY 50 and NIFTY Next 50 companies listed on the exchange. Best examples of large-capital stocks in India are Reliance Industries, Tata Consultancy Services, Maruti Suzuki, Infosys, etc.

Mid Caps funds

As per the identity provided by SEBI, mid-caps comprise of companies ranging from 101 to 250 in terms of market capitalization.Mid-capital funds are considered riskier than large caps, but provides higher returns and are therefore becoming one of the most sought after investments for the retail investors. Stocks such as Biocon, Tata Global Beverages, AIA Engineering, Federal Bank are well known in the mid-cap space.

Small Caps funds

According to SEBI, all companies from the 251^st company in terms of market capitalization can be considered as small-capital stocks. Small-capital stocks are considered to be the riskiest for investments. Because of the low capital base. However, small caps are considered to be the most profitable option. In terms of investment given their remarkable potential in generating returns. Examples of small-caps stocks are HEG, Persistent Systems, India Cements, VIP Industries, etc. Investors should also keep in mind that all mid-capital and large-capital stocks were also once small caps and became large by way of expansion and growth. There are primarily two risks associated with small-capital stocks that make them potentially riskier than large-capital stocks.

•  Small caps stocks are less liquid when it comes to trading which means investors might have difficulty in buying shares in bulk or sell shares at favorable prices as per their wish;
• The risk for small-capital and mid-capital companies is accentuated because they are likely to have less access to capital as compared to large caps (which can be used for funding new businesses or projects).

Difference between Large Cap, Mid-cap, small-cap Shares

In terms of returns

In the table below, we get a glance and analyze returns generated by top large, mid and small capital mutual funds

Large Cap Mutual Funds

The data shown in the above tables, correctly depicts that higher the risk is undertaken by an individual investor, greater would be his/her profits. The average five-year returns for the funds stated above is as follows

Large Caps – 18.9%                         Mid-Caps – 29.96%                              Small Caps – 31.7%

In terms of the expense ratio and top holdings

The expense ratio is the amount the company charges to manage one’s investment portfolio.

If someone invests 10,000 in a  particular fund that has an expense ratio of 2%, then it means that he/she needs to pay INR 200 as part of the expense for running the fund.

Simply put, if a fund earns returns of only 20% in a particular year and has an expense ratio of 2%, then one would earn a return equal to 18%.

The Net Asset Value (NAV) of a  particular fund is reported after deducting all fees and expenses and hence looking at the expense ratio for a fund becomes critical.

To differentiate between the expense ratio for each fund based on category (i.e. large-capital, mid-capital, and small-capital), we can use the different funds offered by a particular fund house in each category.

The table highlighted below helps us gauge details in a better way:

RELIANCE MUTUAL FUND

L&T FUND

KOTAK MUTUAL FUND