What is the difference between 'Large-Cap' and 'Mid-Cap' funds and ideally what should be the mix in one's portfolio? Please mention five large- and mid-cap funds.
The product of a company's outstanding shares and the market price is market capitalisation. This number indicates the value of a company's equity. Investors generally segregate companies into large-caps, mid-caps and small-caps. A finer segregation will add giant-caps and tiny-caps, like we do at Value Research. But what makes a large-cap and what makes a mid-cap is subjective. The definitions for the categories of market cap are quite loose. Every fund company has its own method of differentiating between the categories.
At Value Research, we take all the listed stocks on the Bombay Stock Exchange and arrange them in the descending order of market capitalisation. All the stocks that account for 70 per cent of the total market capitalisation are classified as large-cap stocks, those between 70 and 90 per cent are classified as mid-caps and those accounting for the next 10 per cent are classified as small-caps.
The top 50 per cent of the large-caps are further classified as giant-caps with the next 20 per cent being termed large-caps. Similarly, small-caps are further classified by taking the bottom 1 per cent as tiny and the rest as small-caps.
While calculating the market capitalisation of a fund, we calculate the market capitalisation of each stock in the portfolio.
Then, we calculate the geometric mean of the weighted market capitalisation of all the constituent stocks. This market cap number is compared with our range of capitalisations and we then ascertain whether a stock is a large-cap or a small-cap. At Value Research, we use a relative scale for classifying stocks or funds, which changes dynamically every month. But a lot of fund houses have their own definitions. For example, Chola Midcap classifies mid-caps as stocks having a market cap between Rs 300 crore and Rs 3,000 crore. On the other hand, Birla Midcap defines its universe as shares having market capitalisation between Rs 150 crore and Rs 1,500 crore.
Coming to your question, you should not have too much exposure to mid-caps generally if you are the risk-averse types. Mid-caps rise faster than large-caps in bull markets, but also fall as rapidly. If you want to take a bet that the mid-sized Indian companies will do well, you can tank up on mid-caps in your portfolio. Take a look at the Value Research Style Box to know what funds have more mid-caps. While a lot of funds have a mid-cap bias, there are few others like Franklin India Prima, Chola Midcap, Birla Midcap, ING Vysya Midcap, Kotak Mid-cap, Magnum Midcap and Sundaram Select Midcap, which are dedicated midcap funds.