Understanding market capitalisation and mid-cap funds
Funds are categorised into large-caps, mid-caps and small-caps on the basis of market capitalisation. Market capitalisation is defined as the market value of all outstanding shares of a particular company. The value here is derived when you multiply outstanding shares of the company with the market price of each share.Market capitalisation = current stock price x number of outstanding shares.The Securities and Exchange Board of India (Sebi) defines mid-caps of companies which range from 101 to 250 in terms of market capitalisation.Mid-caps are those that lie between the large caps and small caps in terms of company size or those which have the market capitalisation between Rs 10,000 and Rs 30,000 crore. According to the new Sebi guidelines, mid-caps have to invest a minimum of 65 percent of their assets from 101-250 stocks based on market capitalisation. Mid-caps are riskier than large-caps funds and are less risky than small-cap funds.
The standard deviation for mid-cap funds is less as compared to small-cap funds:
|Nifty Midcap 100
|India Fund Mid-Cap
3-year ratios as on 31st
Dec, 2018.Since the universe for mid-cap funds is between 101 and 250 stocks, the co-relation between Nifty and Mid-cap funds is low.During a bull phase, mid-cap stocks stand a strong chance to outperform their large-cap counterparts because the companies seek expansion and suitable growth opportunities, thus making the underlying stocks volatile. Mid-caps have a better growth potential than large-caps but lesser growth potential than small-cap funds. Compared to small-cap funds the liquidity in mid-caps is more. They give you more exposure to market volatility than large-cap funds. So you should consider investing in mid-cap funds only if you are an investor with a good risk appetite. Moreover, equity investments are more volatile in the short term and investing for the long term would help you create wealth.Post Sebi re-categorisation, each AMC is allowed to have only one mid-cap fund within the category thus making it easy for investors to pick a mid-cap fund. So, in all, we have a total of only 23 schemes in this category.
Mid-cap fund returns for the last 10 years:
|Nifty Mid-cap 100
Data as of 31st