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.
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.
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.
Want to know the main points of difference between mid-cap and small-cap funds? Check out the table below.
Understand the difference between mid-cap and small-cap mutual funds to make informed investment decisions.
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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.
Small-cap funds may have more growth potential than mid-cap funds, but the latter may be a comparatively less risky option.
Yes, small-cap funds are typically considered highly risky because their prices are highly volatile and vulnerable to market risks.
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.