Mutual Fund Foundations
Chapter 6 of 12
Equity funds: large, mid, small and everything between
8 min read
Equity funds invest mainly in shares. They have the highest long-term growth potential among common fund types, and the sharpest ups and downs.
Categories by company size
SEBI classifies companies by market value, and funds by how they invest across them.
- Large cap: the 100 largest listed companies. Generally steadier, with lower growth potential than smaller companies.
- Mid cap: companies ranked 101 to 250. More growth potential, more volatility.
- Small cap: companies ranked 251 onwards. The highest potential and the deepest falls.
- Flexi cap and multi cap: the manager can move across sizes, within the category's rules.
- Large and mid cap: a stated minimum in each segment.
Categories by approach
- Sectoral and thematic: concentrated in one industry or idea, such as banking or technology. Higher risk because one theme drives the result.
- Value and contra: buy out-of-favour companies, and need patience.
- Focused: hold a limited number of stocks.
- ELSS: tax-saving funds with a mandatory three-year lock-in.
A simple core for many long-term investors is a diversified fund, such as a flexi cap or a broad index fund, with smaller allocations to riskier categories only if they fit your comfort with swings.
Key takeaways
- Large cap is steadier; small cap is more volatile with higher potential.
- Sectoral funds concentrate risk and are best used sparingly.
- Equity needs a long horizon.
This content is for education only and is not investment or tax advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.