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

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Created on
July 9, 2022


What’s Inside

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

Summing It All Up

In conclusion, the seven key differences between small-cap and mid-cap funds highlight the unique characteristics and potential benefits of each. Small-cap funds, typically investing in companies with smaller market capitalizations, offer high growth potential but come with increased volatility and risk. On the other hand, mid-cap funds, which invest in medium-sized companies, strike a balance between growth and stability. They offer considerable growth prospects with less volatility compared to small-cap funds. Therefore, the choice between small-cap and mid-cap funds should be based on individual investment goals, risk tolerance, and time horizon. It’s always recommended to diversify your portfolio and consult with a financial advisor before making 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.


Investment and securities are subject to market risks. Please read all the related documents carefully before investing. The contents of this article are for informational purposes only, and not to be taken as a recommendation to buy or sell securities, mutual funds, or any other financial products.
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