Before we discuss on the types of mutual funds based on Market cap, let’s discuss what is Market Cap or Market Capitalization.
Market Capitalization is the total value of outstanding shares of a company. To explain this with example – If the share price of a company is 500 rupees and there are 10000 outstanding shares of the company. Market cap of the company is 500*10000 = 50 lakhs.
As per SEBI guideline, the top 100 companies as per market cap on NSE are large Cap Companies, companies ranked from 101 to 250 as per market cap on NSE are mid cap companies, companies ranked from 251 to 500 as per market cap are small cap companies, and companies ranked from 501 to 750 as per market cap are micro cap companies.
Based on Market Cap, there are below funds offered by AMCs for investment:
Large Cap Funds – As per SEBI guideline, these funds are expected to invest at least 80% of AUM in large cap companies. For the remaining 20%, fund manager has flexibility to invest in large, mid or small companies. This remaining 20% can even be invested in gold, bonds, etc or held in cash for better market opportunity as per the analysis done by fund manager.
Mid Cap Funds – As per SEBI guideline, these funds are expected to invest at least 65% of AUM in mid cap companies. For the remaining 35%, fund manager has flexibility to invest in large, mid or small cap companies. This remaining 35% can even be invested in gold, bonds, etc or held in cash for better market opportunity as per the analysis done by fund manager.
Small Cap Funds – As per SEBI guideline, these funds are expected to invest at least 65% of AUM in small cap companies. For the remaining 35%, fund manager has flexibility to invest in large, mid or small cap companies. This remaining 35% can even be invested in gold, bonds, etc or held in cash for better market opportunity as per the analysis done by fund manager.
Multi Cap Funds – As per SEBI guideline, these funds are expected to invest at least 25% of AUM in each Large, mid and small cap companies. For the remaining 25%, fund manager has flexibility to invest in large, mid, or small cap companies. This remaining 25% can even be invested in gold, bonds, etc or held in cash for better market opportunity as per the analysis done by fund manager.
Flexi Cap Funds – As per SEBI guideline, these funds are expected to invest at least 65% of AUM across market cap. To explain this with example – Let’s consider 4 flexi cap funds by 4 different AMCs, Fund A, Fund B, Fund C and Fund D. It could be possible that Fund A has invested 65% of AUM in large cap companies, Fund B has invested 65% of AUM in mid cap companies, Fund C has invested 65% of AUM in small cap companies, and Fund D has invested 20% in large cap, 30% in mid cap and 15% in small cap companies. The fund manager has flexibility to switch between large, mid and small cap companies anytime.
For the remaining 35%, fund manager has flexibility to invest in large, mid or small companies. This remaining 35% can even be invested in gold, bonds, etc or held in cash for better market opportunity as per the analysis done by fund manager.
Large and Mid Cap Funds – As per SEBI guideline, these funds are expected to invest at least 35% of AUM in each large and mid cap companies. For the remaining 30%, fund manager has flexibility to invest in large, mid or small cap companies. This remaining 30% can even be invested in gold, bonds, etc or held in cash for better market opportunity as per the analysis done by fund manager.
Based on the market cap, there are index funds as well offered by AMCs for investment which we will discuss in a separate blog.