Widely read:
Summary: How much of your equity portfolio should sit in large-, mid- and small-cap funds? Dhirendra Kumar lays out a sensible split and, more usefully, the reasoning that should guide it. The logic ties your allocation back to the shape of the Indian market itself.
Every equity mutual fund investor eventually runs into the same question: How do you divide your money across large-, mid- and small-cap funds? Lean too heavily on small caps and you take on more risk than you may have bargained for; play it too safe and you could leave returns on the table.
So what's the right mix? Here's how Dhirendra Kumar suggests thinking about it.
Ideally, entrust your money to someone who is allocating it properly. But generally speaking, 65-70 per cent should be in large-cap funds, 20 per cent in mid-cap funds and 10-15 per cent in small-cap funds.
If you analyse the equity universe in India, this is the break-up you get. Large caps, for instance, account for 65-70 per cent of the Indian market's capitalisation. Your portfolio will be reasonably representative of the Indian market, while also exhibiting strong selectivity. There are more than 3,000 listed stocks, but your portfolio typically contains no more than 100. So, hopefully, it will perform better.
Where each fund category invests
- Large-cap funds: They invest predominantly in India's 100 largest listed companies by market capitalisation (SEBI mandates at least 80 per cent in large caps).
- Mid-cap funds: These funds invest mainly in companies ranked 101st to 250th by market capitalisation (at least 65 per cent in mid caps).
- Small-cap funds: They invest mainly in companies ranked 251st and beyond by market capitalisation (at least 65 per cent in small caps).
Need more guidance?
Not sure how much of your portfolio belongs in large, mid or small caps, or which specific funds fit your goals? Value Research Fund Advisor helps you understand your financial needs and build a portfolio matched to them.
Subscribe to Fund Advisor today
This article was originally published on July 06, 2017, and last updated on June 09, 2026.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
