Large vs Mid vs Small Caps: All the stocks in the stock market are divided into large caps, mid caps and small caps on the basis of their market capitalization.
Large vs Mid vs Small Caps: If you invest in the stock market or are thinking of doing it, then the most important question arises that in which stock should one invest money. One rule of investment is that you should not invest your entire capital in one place, but invest it in more than one place by dividing it into parts. To get better return on investment, it is necessary to build a balanced portfolio.
All stocks in the stock market are divided into large caps, mid caps and small caps on the basis of their market capitalization. This helps the investors in taking investment decisions. In such a situation, it is important to understand what are large, medium and small caps and what are the pros and cons of investing in them.
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Large Caps
- The market capitalization of a company is calculated by multiplying the total outstanding shares by the current share price. The market cap of large cap companies is 20 thousand crores or more.
- The companies included in this category have a strong market share.
- They do not have much effect even in the midst of recession or weak market sentiment. It is less volatile than mid-cap and small-cap stocks.
- If you want to invest in low-risk companies, then large-cap stocks are better.
- Example- Reliance, Infosys etc.
Mid Caps
- Companies with a market cap of 5 thousand crores to 20 thousand crores are kept in the category of mid cap companies.
- Investing in these is more risky than large cap market companies as they are likely to be more volatile.
- Mid cap companies can become large cap companies in the long run.
- Investment in these companies can give higher returns than large cap stocks, due to which it is considered attractive for investors.
- Example- Metropolis Healthcare, Castrol India and LIC Housing Finance etc.
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Small Caps
- Companies with a market cap of less than Rs 5 thousand crore are kept in the category of small caps.
- The companies included in this category have a lot of potential for high growth. There is a high risk on investing in these because the chances of small cap companies being successful in the coming years are not high.
- The prices of these companies are very volatile i.e. they fluctuate more.
- Small cap stocks can outperform after an economic slowdown or a sharp fall in the market.
- Example- Hindustan Zinc, DB Corp and Hathway Cable etc.
(Input: Kotak Securities)
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