Understanding Large Cap, Mid Cap and Multi Cap Mutual Funds
Mutual Fund pools the savings of the investors, who share a common financial goal and then invest the corpus collected into a number of financial instruments to maximize the returns.
One of the ways to divide or identify a mutual fund is the criteria of market capitalistion.
The market capitalisation or Market Cap is the total no. of shares of a company outstanding in the stock market multiplied by the market price.
The major three types of mutual funds are Large Cap, Mid Cap and Multi Cap mutual funds.
Below we shed more light on the three types of the Mutual finds based on market cap.
Mutual fund houses have different parameters for choosing a large cap fund. Mostly, the companies which have got more than 1000 crore of market capitalization are taken as large cap companies and then the mutual funds invest in them accordingly. These companies have got maximum potential to grow and earn higher profit since they have large amounts of money at their disposal which can often be used.
The primary objective of the large cap mutual funds is to seek robust capital growth by investing into the stocks of large corporations and frontline blue chip companies.
Large cap mutual funds are generally less volatile than their counterparts which are Mid Cap and Multi Cap mutual funds.
However, the returns are generally low when compared with other classes as they are exposed to lesser risk, but on the long term, these funds have outperformed its peers. It is advisable to invest in Large-cap Mutual funds during volatile market conditions.
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Over the years a diverse range of mutual funds has emerged to meet a very broad range of investment objectives among the investing public.
A fund’s prime investment goals are stated in the fund’s offering prospectus and generally cover the degree of safety or risk that is acceptable, whether income or capital gain is the prime objective, and the main types of securities in the fund’s investment portfolio. From their differing investment objectives, the following main types of funds emerge:
1. Bond Funds – whose main investment goals are income and safety of principal. Investment by such funds is primarily in good quality, high yielding government and corporate debt securities, some high-yield preferred and common shares and mortgages. Their degree of volatility
is related to the degree of interest rate fluctuation.
Example: Altimira Bond Fund.
2. Mortgage Funds – investment goals are similar to those of bond funds, and unit values are affected by similar economic factors. Investors hold a share in a group of mortgages (much as bond fund investors hold a share in a group of bonds) rather than holding title to a particular
Example: Royfund Mortgage Fund.
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