- Date : 29/06/2023
- Read: 3 mins
Small cap vs mid cap vs large cap: Find out how to design the perfect mutual fund portfolio
- Mutual fund investments are gaining tremendous popularity in India
- There are numerous fund categories, and understanding them is important while designing the portfolio
- The ideal portfolio is unique and will depend on some crucial personal criteria
Between December 2014 and December 2022, the Asset under Management (AUM) in the Indian mutual fund industry quadrupled to Rs. 40 trillion. Equity funds have an AUM of Rs. 22.7 trillion, while debt funds have AUM valued at Rs 13.79 trillion. Besides, there are other categories, like hybrid funds, solution-oriented funds, fund of funds (FoF), exchange-traded funds (ETF), etc.
Each of these categories has many sub-categories. This makes the mutual fund portfolio designing a complex affair that goes beyond your small cap vs mid cap vs large cap decision. So, how do you create your best mutual funds portfolio mix?
Choosing the mutual fund categories
- Equity funds – Within equity funds, small cap mutual funds have the most volatility and good growth potential compared to mid and large caps. Investors with 10+ years of investment horizon should invest in them. Those with shorter time, say 5-6 years, should invest more in the stable large cap mutual funds.
Apart from the volatility and the investment tenure, your risk appetite influences your portfolio decisions. A risk-averse investor would invest funds in matured large-cap stocks like Reliance and TCS. A more aggressive investor with a steep financial goal would give higher weightage to small and mid cap mutual funds.
Also Read: Best equity mutual funds to Invest in India
- Debt funds – These funds offer sub-categories for different investment tenures. You can spread your debt fund portfolio per your investment timeline and return expectations from overnight and ultra-short-duration funds to long-term debt funds.
- Other funds – Depending on your portfolio diversification goals, you can invest in ETFs, FoFs, index funds etc., that generally follow a benchmark index and are less volatile than pure equity funds. For instance, a gold ETF or FoF tracks the price of physical gold.
- International funds – Geographical diversification in mutual funds is possible through investments in funds with global exposure. These funds invest in stocks in leading overseas indices like Dow Jones and NASDAQ.
The ideal portfolio
After your deliberations over the different mutual fund categories, you may design a diversified mutual fund portfolio with, say, 60% equity funds, 30% debt funds and 10% international funds. Within equity, your small cap vs mid cap vs large cap ratio may be 40:30:30. However, these are just indicative numbers, and your actual weightage would depend on your risk appetite, diversified investment strategy, financial planning goals, and investment tenure.
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Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.