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7 Key Differences Between Small-Cap and Mid-Cap Funds

6

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FACT CHECKED

Last edited by

Pranav Karnad

on

August 10, 2023

Reviewed by

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Created on

July 9, 2022

Diversifying your portfolio with mutual funds? If you can handle more risk, consider small-cap or mid-cap funds for higher growth potential. But first, learn the difference between these options.

What are Small-Cap Funds?

Small-cap mutual funds invest in publicly traded small-cap companies (i.e., companies ranked from 251st position in terms of decreasing market capitalisation). These companies have exceptional growth potential, but are also highly risky due to higher volatility. Besides small-cap stocks, the fund may also include mid-cap or large-cap stocks, debt and money market instruments in its portfolio.

What are Mid-Cap Funds?

Mid-cap mutual funds invest mainly in mid-cap companies, ranked 101st to 250th in decreasing market capitalization. A small portion of assets are diversified across small-cap or large-cap stocks, debt securities, and money market instruments.

The Key Differences Between Small-Cap and Mid-Cap Funds

Want to know the main points of difference between mid-cap and small-cap funds? Check out the table below.

Criteria	Small-Cap Funds	Mid-Cap Funds
Market Capitalisation	Invest in smaller publicly traded companies	Invest in medium-sized publicly traded companies
Potential for Growth	Higher growth potential in long-term	Growth potential lower than small-caps but better than large-caps
Risk	Typically higher due to volatility and lower liquidity	Generally less risky than small-caps but riskier than large-caps
Returns	Potential for higher returns than mid-cap funds	Average returns may be better compared to large-cap funds
Liquidity	Might have lower liquidity due to less institutional coverage	Generally offer better liquidity than small-caps but might be less liquid than large-caps
Dividend Payouts	Less likely to pay dividends	More likely to pay dividends than small-caps but lower than large-caps
Response to Economic Factors	More sensitive to domestic economic factors and less influenced by global events	More resilient to domestic economic downturns than small-caps but still sensitive to economic shifts
Value-add to Investors’ Portfolio	Offer potential for higher returns with higher risks	Offer a balance between growth and stability to diversify portfolio's risk and return profile

Make an Informed Investment Choice Today

Understand the difference between mid-cap and small-cap mutual funds to make informed investment decisions.

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Frequently Asked Questions

1. What is the difference between small-cap and mid-cap funds?

A small-cap fund invests in small-cap stocks of listed companies ranked 251st or lower in decreasing market cap. A mid-cap fund invests in mid-cap stocks of companies ranked 101st to 250th.

2. Which is better: small-cap funds or mid-cap funds?

Small-cap funds may have more growth potential than mid-cap funds, but the latter may be a comparatively less risky option.

3. Are small-cap funds risky?

Yes, small-cap funds are typically considered highly risky because their prices are highly volatile and vulnerable to market risks.

4. Should I invest in small-cap funds or mid-cap funds?

That depends entirely on your financial goals and risk profile. If you want to increase the potential for greater capital growth, small-cap funds may be suitable. But if you want a less risky option, mid-cap funds could be a better choice.