Small Cap and Mid Cap Mutual Funds are the Progressive Ones
There are three categories in the equity market namely, Large-Cap, Mid-Cap, Small-Cap. In this section, we will be focusing on Small-Cap and Mid-Cap companies.
- Small-Cap Mutual funds are the funds which invest in the Small-cap equity companies. These are the companies which have recently emerged on the horizon of the Indian financial market. These companies are the most promising ones of the industry and have very high potential for growth. Thus, Small-Cap mutual funds invest primarily in the companies which have recently entered the financial markets and are growing, in size and regarding market share, rapidly.
- Mid-Cap mutual funds are the type of funds investing in the companies which are of medium size regarding the capital employed. It is bigger than the small-cap companies but smaller as compared to large-caps. These companies carry a growth perspective which provides fluctuating returns to the investors.
Both the Small-Cap mutual funds and Mid-Cap mutual funds have a potential of giving prolific returns but only in the long-term perspective. The tenure of investment plays a crucial role in the determination of the performance of the fund.
Common features of Mid-Cap mutual funds and Small-Cap mutual funds:
- Tenure of investment: The tenure of investment is the vital factor which will determine returns of the Mid-Cap and Small-Cap mutual funds. As the Mid-Cap and Small-Cap Mutual funds are more volatile in nature, they tend to give fewer returns in the short run. But if the investor is ready to take the risk and invests for a longer duration then he/she can earn phenomenal profits. As the mid-cap and small-cap companies have the potential to grow but cannot bring about major changes in the short run. So, if you are planning to invest through SIP in Mid-Cap and Small-Cap mutual funds, you got to have patience and keep investing for a longer duration. The simple rule applies to Mid-Cap and Small-Cap mutual funds is, “If you are not willing to own a stock for 10 years, then don’t even think of owning it for 10 minutes”.
- Falls prey to market fluctuations: Mid-Cap and Small-Cap Mutual funds are volatile because as the market shows little change in the momentum (positive or negative), there is a significant impact on the funds. Thus, Mid-Cap and Small-Cap mutual funds follow the saying of Warren Buffet, “Look at market fluctuations as your friend and not as an enemy. Profit from folly rather than being a part of it”. So by understanding the market fluctuations you can master the art of gaining from the fluctuating market also.
- Capable of giving high returns: Owing to the future growth capabilities and long-term perspective Mid-Cap and Small-Cap Mutual funds are proficient enough to give handsome returns to its investors. Even though the risk factor is high, the tenure of investment provides relaxation to the problem. Having idle resources the mid-cap and small-cap companies are likely to grow and therefore, Mid-Cap and Small-Cap mutual funds will also earn profits for their investors.
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