Is it better to invest in mid caps than small caps? | Value Research Dhirendra Kumar explains which type of fund is better to invest in
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Is it better to invest in mid caps than small caps?

Dhirendra Kumar explains which type of fund is better to invest in

How do you compare investing in mid caps versus small caps? Are mid caps better in the Indian context?
- Pavan Jakhotia

The challenges and the promise of the mid caps are somewhat similar to small caps. It is also visible in the definition of the mid caps and the small caps, given that mid caps can invest dominantly in mid caps, and reasonably a good part of it can be small caps and large caps as well. Likewise, for small caps, it could be dominantly in small caps but can well be there in mid caps.

SEBI prescribes a mechanical and quantitative yardstick that the top 100 companies are defined as large caps, the next 150 companies are mid caps, and the subsequent equity universe is the small cap. But that doesn't mean that company number 101 to company number 250 always remain in mid caps. They have said that this is a mid cap or a small cap, but the characteristics of those companies tend to remain the same. If it is small but great, well-managed, and a rapidly growing business, it holds promise. So don't get into an exact definition because the characters will remain the same.

Many of these funds can take shelter with these definitions. When a mid-cap fund actually gets very big, they tend to invest more in the larger of the mid caps. For example, investing in companies from 101 to 125 might be classified as mid caps, but they are almost tending to be large caps and many times, they get into the large-cap arena and then come back. So they might have greater scalability but nothing beyond that.

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