What is the difference between large cap, mid cap and small cap?
Before that what is a cap?
What does market Capitalization tell about growth, risk, stability and returns?
In this episode Anmol talks about all these and more!
Disclaimer: This podcast is for educational purposes only. Anything said should not be construed as advice.
Transcript:
Hi Everyone. Welcome to "Money Ki Baat". Today I will be explaining you a very simple concept. You must have commonly heard about Large Cap, Mid Cap and Small Cap stocks. In terms of mutual funds - Large Cap mutual fund, Mid Cap mutual fund and Small Cap mutual fund. So what are they?
To understand them, we need to first understand the term "Cap". What is the meaning of the word "Cap" in Large Cap, Mid Cap and Small Cap?
The word "Cap" means capitalisation or to be more precise, it is called market capitalisation.
Now, what is Market Capitalisation?
Each company listed in the Stock Exchange have it's own share price. For example, yesterday the share price of TCS was 2,200/-. This means that the value of 1 share of TCS was 2,200/-. Now this is the price of 1 share.
To find out the total value of all the TCS shares available in the market, we need to multiply the price of 1 share with the total number of TCS shares available in the market.
Quite simple, right?
If one chocolate costs 10/- and you have 100 chocolates, then the total value of your chocolates is 1000/-. It is as simple as that. Therefore, in case of stocks, the total value of all the shares is known as market capitalisation or market cap.
In the above example, total number of TCS shares is 375Cr. So the total Market Cap of TCS is 2200/- multipled by 3,75,00,000. which comes up to around 8 trillion Rs.
So, this was Market Cap.
If we rank different companies on the basis of their market cap, then the fist 100 companies fall under Large Cap. The companies that fall between 101th and 250th rank are Mid Cap, and the companies listed beyond 250th rank are known as Small Cap.
Therefore, in terms of Mutual Funds, Large Cap Mutual Funds are the funds that invest maximum amount in Large Cap Stocks, i.e, they invest money in the first 100 companies. Mid Cap schemes invest in companies ranking between 101th and 250th. And Small Cap companies invest in those companies whose market cap is less than first 250 companies.
Therefore, the larger the size of the company, the higher is the market cap and it's business stability.
Large Cap companies are considered to be less risky because their businesses are unlikely to fluctuate in the market. But at the same time, Large Cap companies are well established companies with a stable growth.
On the other hand, Small Cap companies are not so well established. Their businesses are not as stable as Large Cap companies. But these companies have the potential to grow as they haven't been fully matured yet.
And Mid Cap companies, you must have already understood, come in between Small Cal and Large Cap companies.
So, I hope Large Cap, Mid Cap and Small Cap makes more sense to you now. Feel free to post any questions that you have.
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