Equity Mutual Fund They are further sub-classified according to the market capitalization of the companies in which they invest. These funds can be classified as large cap, mid cap, small cap fund etc. Before we get into more details, let’s clear up some basic concepts.
What is market capitalization?
To put it simply, market capitalization is the value of a company that is traded on the stock market, calculated by multiplying the current share price by the total number of shares outstanding. Market capitalization can be further understood based on this simple formula. It is commonly referred to as market cap where ‘cap’ stands for capitalization.
Market cap of a company = Current market price of one share * Total number of shares outstanding
Here is an example to help you understand market capitalization better:
If the present price of one share of Tata Motors is Rs. 5000, and the total outstanding publicly traded shares held by the company are 1 crore, then the market cap value of the company is Rs 5000 * 1 crore shares which equals Rs. 5000 crores.
The market capitalization of any company may or may not be constant. This is because the price per share of a publicly traded company fluctuates and so can its market capitalization. Similarly, the number of shares outstanding may change over time, based on purchases/sales.
Key Differences Between Large Cap, Mid Cap and Small Cap Companies
Large cap, mid cap and small cap funds invest primarily in equity and equity related instruments. Therefore, they all carry some amount of risk with them. This is the reason why investors are expected to have a defined investment goal so that they can identify which investment avenue they can choose to meet their goal.
Mutual fund investments should always be discussed with a financial advisor who can help an investor make an informed decision. Moreover, investors who keep their investments aligned with their investment horizon and risk appetite have a better chance of moving a step closer to their ultimate financial goal.
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Mutual Fund investments are subject to market risks, read all scheme documents carefully.