• HDFC securities
• 18 May 2023
• Knowledge Centre

Equity mutual fund invest in the stock market. SEBI’s mutual fund regulations mandate that such funds invest at least 65% of the scheme’s assets in equities. As per the company capital, equity funds are categorised into large-cap, mid-cap and small-cap funds. Equity funds try to generate big returns by investing in companies across all market capitalisation categories. But which one should you consider?

You first need to learn all about mutual fund investment plans, their features and how one is unique from another. This can help you make an informed choice and avoid costly mistakes. Here’s a look at the different categories of equity mutual funds.

Large-Cap Mutual Funds

Large-cap stocks are of the top 100 companies listed on the Indian stock exchange based on market capitalisation. The market cap of these stocks is usually above ₹20,000 crore. Large-cap equity funds are a good choice for investors with a low risk appetite looking for steady wealth generation. This is because large-cap stocks tend to be stable since the companies are trusted and well-established.

It is best to stay invested for at least 5-7 years in such funds. Pick a large-cap equity fund if you are a conservative investor or looking for exposure to the equity markets for the first time. These typically offer consistent returns in comparison to mid- and small-cap mutual funds, especially during volatile market conditions. Using tools like the SIP Calculator by HDFC SKY can help you estimate how much to invest monthly for your large-cap fund goals over time.

Mid-Cap Mutual Funds

Mid-cap funds invest 65% of their corpus in mid-sized companies or stocks with a market cap between ₹5,000 crore and ₹20,000 crore. These are ideal for investors who are ready to absorb moderate-to-high risk. Consider an investment horizon of 8-10 years to reap the benefits of mid-cap mutual funds in India. Experts say these funds are the perfect combination of stability and the aggressiveness that characterises mid-sized firms.

Mid-cap funds usually invest in companies that are still growing. Most of them have fairly good growth potential due to a well-structured business model. You can consider mid-cap funds based on previous returns and fund performance.

Small-Cap Mutual Funds

Small-cap funds invest in stocks of companies with market cap of less than ₹5,000 crore. These funds invest a minimum of 65% of the corpus in small-caps stock. This type of investment is recommended if you can stay invested for 5-7 years. Small-cap mutual funds are more volatile than large- and mid-cap funds and can entail high risk. Liquidity is also a challenge here.

Consider these funds if you have high risk tolerance. However, small-cap funds also have the potential to offer benchmark-beating returns if the markets are favourable, which is ultimately an excellent opportunity for greater wealth generation. Research shows that they might even give returns of more than 100% in one day!

Multi-Cap Mutual Funds

This is an open-ended equity scheme invests across large-cap, mid-cap and small-cap stocks. A certain percentage of the invested capital is set aside for each category to ensure the best returns. The fund manager will regularly review and adjust the investment allocation based on market performance. Multi-cap funds can prove beneficial for first-time equity investors. This is because they average out the risks that come with investing in a specific-sized stock.

Get in touch with a financial advisor to understand mutual fund investments in detail. They can also help you get an idea of where to invest as per your financial goals, investment timeframe and risk appetite.