There are several categories of mutual funds. However, let us focus on the various categories of equity mutual funds. Based on the size of the companies in which the mutual funds invest, equity funds are majorly divided into large cap, mid cap and small cap.
Let us now see what each of these funds mean in brief:
These are funds which invest in large companies. So how can one determine if a company is a large one? A company that has a *market capitalization of more than Rs.20,000 crores is a large company. These funds have lower risks as well as lower returns.
Example: Reliance large cap fund
Companies having moderate market capitalisation are the ones whose funds can be classified under mid-cap funds. Their market capitalisation ranges from Rs.50 billion to 200 billion. If you have a higher risk appetite and are looking for a faster growth, a mid cap fund is suitable.
Example: Aditya Birla Sun Life Pure Value Fund.
These are companies having higher risks. These are funds that invest in companies having small market capitalisation. The market capitalisation is less than Rs.50 billion. So, an investor who wants to gain higher returns and ready to take higher risks can invest in a small cap fund.
Example: SBI focused equity fund
* Market capitalization is one of the measures to determine the company size. Depending on the size of the companies in which funds are invested in, such as small, tiny or big, there are various types of equity mutual funds accordingly.