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Invest smart: Understanding mutual funds and market capitalisation

The variety of investment approaches mirrors the diversity of the investors who employ them. However, one common thread that weaves through the fabric of investing is the concept of mutual funds. A key factor that guides the selection of stocks within a mutual fund is market capitalisation. 

If you’re looking for an entry point for a deeper dive into the world of market capitalisation-based mutual funds and why it matters so much when making investment decisions, this article is for you.

Understanding market capitalisation

The term “market capitalisation,” short for “market cap,” is fundamental to the investment community. It is a broad measure of how much a stock is worth in the market. An organisation’s market capitalisation results from multiplying its share price as of a certain date by the total number of outstanding shares, as determined by the stock market.

Looking at a company’s market cap is a simple way to estimate its worth. Supply and demand dictate the market price of a company’s shares once they begin trading on the exchange after going public. 

The price would go up if there’s a lot of interest in buying a stock because of positive reasons. In contrast, stock sellers may attempt to lower the price of the company’s shares if they believe its future growth prospects are unfavourable.

To illustrate, a market cap of ₹1 billion would be achieved by a company with 10 million shares priced at ₹100 each. In contrast, a market cap of ₹10 million would be given to a company if its share price were 1,000 but there were only 10,000 shares in circulation.

Types of mutual funds based on market capitalisation

Large-cap funds

Large-cap mutual funds are investment vehicles that allocate a minimum of 80% of their assets to the top 100 companies, as determined by market capitalisation. The standout large-cap funds are those that have consistently delivered strong returns, distinguishing themselves within their category. 

Investors in these funds can benefit from the security and future growth prospects of long-standing businesses.

Some famous large-cap mutual funds include:

NameFund sizeExpense ratio3Y returnMin SIP investment
ICICI Prudential Bluechip Fund Direct-Growth₹49837.78 Cr.0.85%21.38%₹100
SBI Bluechip Direct Plan-Growth₹43272.98 Cr.0.85%15.52%₹500
Mirae Asset Large Cap Fund Direct-Growth₹37903.96 Cr.0.54%14.85%₹500

Mid-cap funds

Mid-cap mutual funds are investment funds that allocate a minimum of 65% of their assets to companies that rank between 101st and 250th in terms of market capitalisation. 

Investors can take advantage of the growth possibilities for mid-sized companies through these funds.

Some famous mid-cap mutual funds include:

NameFund sizeExpense ratio3Y returnMin SIP investment
HDFC Mid-Cap Opportunities Direct Plan-Growth₹59027.47 Cr.0.77%30.54%₹100
Kotak Emerging Equity Fund Direct-Growth₹39027.24 Cr.0.38%23.86%₹100
Nippon India Growth Fund Direct-Growth₹24365.53 Cr.0.85%29.26%₹100

Small-cap funds

Small-cap mutual funds are investment vehicles that allocate a minimum of 65% of their total assets to smaller companies. As per the guidelines set by SEBI, small companies are those that rank 251st and above in terms of market capitalisation. 

These funds tend to exhibit higher volatility due to their significant sensitivity to market fluctuations. Through these funds, investors have the opportunity to capitalise on the significant growth potential of small-cap stocks.

Some famous small-cap mutual funds include:

NameFund sizeExpense ratio3Y returnMin SIP investment
Nippon India Small Cap Fund Direct-Growth₹45894.01 Cr.0.80%37.61%₹1000
HDFC Small Cap Fund Direct-Growth₹28606.62 Cr.0.61%33.86%₹100
SBI Small Cap Fund Direct-Growth₹24861.53 Cr.0.69%25.80%₹500

Multi-cap and Flexi-cap funds

Both Multi-cap and Flexi-cap funds are investment fund types that spread their portfolios across stocks of various sizes – large, mid, and small-cap. A minimum of 65% of their resources is mandated to be invested in equity and instruments related to equity.

The main distinction is the allocation of investments. In Multi-cap funds, the allocation is typically balanced across different market caps, while Flexi-cap funds offer the fund manager the liberty to allocate investments across all market capitalisations in any ratio, devoid of any constraints.

Both types of funds have their unique advantages. Multi-cap funds have consistently delivered impressive returns, standing out in their category, and represent a promising investment option for those looking to benefit from the growth potential of different market segments. 

On the other hand, Flexi-cap funds offer a blend of growth and value to investors over an extended period, while also reducing market risks due to their flexible nature.

Choosing the right mutual fund based on market capitalisation

When choosing a mutual fund based on market capitalisation in India, consider the following factors:

  • Investment objective
  • Fund performance
  • Expense ratio
  • Time horizon
  • Risk tolerance


For astute investing, it is essential to grasp the intricacies of mutual funds determined by market capitalisation. Each category offers unique opportunities and risks. 

Importantly, the role of mutual funds in capital market development is significant, as they channelise savings into productive investments. Always seek expert advice before investing. Happy investing journey!


What is the market capitalisation of a mutual fund?

The market capitalisation of a mutual fund refers to the sum of the market capitalisations of the companies it invests in. It’s categorised into large-cap, mid-cap, and small-cap funds, which invest in large, medium, and small companies respectively. This categorisation helps investors align their investments with their risk tolerance and return expectations.

What are small-cap, mid-cap and large-cap?

In the Indian market, companies are classified based on their market capitalisation. Large-cap companies have a market cap of ₹20,000 crore or above. Mid-cap companies have a market cap between ₹5,000 crore and less than ₹20,000 crore. Small-cap companies have a market cap of below ₹5,000 crore.

How to find market capitalisation?

Market capitalisation is calculated by multiplying the current market price of a company’s shares by the total number of its outstanding shares. It represents the total monetary value of a company and is used to size up corporations and understand their aggregate market value.

Why market capitalisation is important?

Market capitalisation is crucial as it provides a clear insight into a company’s value. It allows investors to size up a company based on its perceived value. This valuation is pivotal in enabling stakeholders to make informed investment choices. It also helps forecast a company’s future earnings.

What are the 4 types of mutual funds?

The four main types of mutual funds are:
Equity funds: Invest primarily in stocks.
Bond funds: Invest in bonds and other debt securities.
Money market funds: Invest in short-term debt securities.
Balanced funds: Invest in a mix of equities and bonds. 
Each type has different risk and return characteristics.

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