SIP in large cap vs mid cap vs small cap funds: Which category is the best for long-term growth? Experts suggest

Systematic Investment Plan (SIP) is the most preferred option for investing in mutual funds today. Investors contribute a fixed sum regularly, like monthly or quarterly, rather than a lump sum, starting from as low as Rs 100 per month. Equity mutual funds are divided into three categories-- small, mid, and large caps. An investor can either pick one fund or can diversify their portfolio. 

So where should long-term SIP investors park their funds? 

Anirudh Garg, Partner and Fund Manager at Invasset, believes for SIP investors, large-cap funds could be a safer bet in the current environment, particularly for those focusing on capital preservation. 

Garg suggests buying mid and small caps on dips as a tactical move and large caps on the rise, with a readiness to shift back to mid and small caps when comprehensive market declines present clear value opportunities. 

Meanwhile, Mohit Gang, CEO, MoneyFront, advises diversifying one's portfolio. 

"A healthy mix of large, mid, and small caps is ideal for the portfolio balance. Large caps will give stable and steady returns with less volatility, whereas mid and small caps will provide extra impetus in good market cycles albeit with higher volatility," said Gang. 

He added a good equity portfolio should have at least 50-60 per cent allocation to large caps at all times and the remaining could be divided between mid and small caps.

Priti Rathi Gupta, Founder of LXME, suggests choosing funds as per the goals and risk tolerance of the investors. 

For instance, if an investor is aiming for stable returns over the long term, they can explore large-cap funds. 

On the other hand, if they have a higher risk tolerance and aiming for potentially higher returns, then mid- and small-cap funds can be explored. 

It should be noted that moving from large- to small-cap funds, volatility increases and the risk also increases. The risk factor for small-cap funds for an investor is higher.

What kind of returns can one expect from large-, mid-, and small-cap funds with a long-term view?

Experts estimate an appreciation of 8 to 15 per cent. As for mid and small caps, they foresee an appreciation of 10-15 per cent, but with a significant downside risk of 25-30 per cent. 

SIP return calculation 

If one invests Rs 5000 per month for the next 10 years in a large-cap fund, they will receive approx. Rs 13,93,286 by the end of 10 years, considering 15 per cent appreciation annually. 

Similarly, if they invest Rs 5,000 per month for the next 10 years in a mid- or small-cap fund, they will receive approx. Rs 11,61,695 by the end of 10 years considering 12 per cent appreciation annually. 

Which fund is the best for long-term investors? 

Given the shifting landscape, Invasset prefers large-cap funds as the segment is considered to be more resilient, with less volatility compared to the mid and small caps. 

Further, while the potential for growth in mid and small caps still exists, the heightened risk and anticipated market volatility lean in favour of large caps for steady long-term growth.

For long-term SIP, we at Moneyfront would recommend the following funds:
>> Pru ICICI Nifty 50 Index Fund.
>> UTI Nifty 200 Momentum 30 Index Fund.
>> Parag Parikh Flexi Cap fund.
>> Edelweiss Mid Cap fund.
>> Tata Small Cap fund.

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