Mutual Funds SIP Analysis: Small Cap vs Mid Cap vs Large Cap Funds - Where to invest and why? Knowledge tank here

Mutual Funds SIP (Systematic Investment Plan) are one of the main attractive investment tools among the investors who are ready to take some amount of risk, which is subject market performance. However, while investing, mutual fund investors come across a confusion about whether to invest in small-cap mutual funds or they should invest in mid-cap or large-cap mutual funds SIP. Investment experts are of the opinion that an investor should diversify one's SIP investment rather investing the entire surplus fund into one category. The experts' opinion was linked to the movement related to the small cap, mid cap and large cap because more will be the movement more will be the return but it's applicable when the market is favourable. What about the return when the market moves in a negative direction?

Mutual Funds SIP return is subject to its movement, which is linked to the equity market performance. Speaking on the fund allocation strategy Jitendra Solanki, a SEBI registered investment expert said, "Small-cap mutual funds SIP moves faster in comparison to mid-cap and large-cap as its volume is very low. Due to this, people prefer to invest in small-cap more than in the mid cap and large cap. But, the best strategy is to allocate an equal amount of surplus fund to all categories. It helps to contain the losses when the market moves in the opposite direction."

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Explaining on how the diversification helps contain losses Kartik Jhaveri, Director — Wealth Management at Transcent Consultants said, "Small-cap mutual funds SIP gives the fastest movement either the market moves in positive or in the negative direction. So, if the mutual funds SIP investment in small cap has chances to give maximum return when the market is moving in the positive direction, it has the tendency to give the least return when the market moves in a negative direction. Similarly, it happens with the mid-cap and large-cap mutual funds SIP." Jhaveri said that large-cap mutual funds SIP moves least while mid-cap mutual funds SIP moves in mid-ways. So, if an investor has diversified his or her portfolio, the investment works as a hedge when the market is moving in a negative direction.

On the difference in return if compared to all categories of mutual funds SIP investment Kartik Jhaveri of Transcent Consultants said, "A small-cap mutual fund SIP gives around 12-14 per cent return on an investment of around 10 and above years. However, if the investment is for 25 years or more, it can be to the tune of 17 per cent if the market has performed positively in the last four to five years of the investment. However, a return of 14-16 per cent in such period of investment can't be denied."