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Things you need to know about Mutual Funds based on Market Capitalization


Things you need to know about Mutual Funds based on Market Capitalization


Equity mutual funds are typically categorized based on the market capitalization of their underlying stock investments. A company’s market capitalization refers to the value of the total outstanding shares trading in the stock market (outstanding shares x market price of shares). In other words, market capitalization is also the full value of a company. The Securities and Exchange Board of India (SEBI), the regulatory body for mutual funds in India, classifies equity mutual funds as per the market capitalization of the companies the scheme invests in.

Mutual Funds

Here is a brief overview of mutual funds based on market capitalization.

Based on market capitalization, equity mutual funds can be divided into:

Significant cap equity funds:

According to SEBI, large-cap mutual funds should invest at least 80% of the investors’ funds in large-cap company stocks. Large-cap companies are the top 100 companies listed on the stock exchanges (such as Bombay Stock Exchange (BSE) and National Stock Exchange (NSE)) as per market capitalization. Significant cap funds are less risky since they invest in fundamentally strong companies. This category of mutual funds is suitable for low-risk investors.

Mid-cap equity funds:

According to SEBI, mid-cap equity funds invest at least 65% of the investors’ money in mid-cap company stocks. As per market capitalization, mid-cap companies rank between 101 and 250 on the stock exchange. This category of mutual funds is best for moderate-risk investors since the growth of mid-cap stocks is uncertain.

Small-cap equity funds:

According to SEBI, small-cap mutual funds invest at least 65% of their investors’ money in small-cap company stocks. Small-cap companies rank below 250 on the stock exchange in market capitalization. Small-cap mutual funds can potentially generate high returns but also carry high risks. Such mutual funds are best suited for high-risk investors who aspire to accumulate a large corpus.

Multi-cap equity funds:

These mutual funds invest in large, mid, and trim stocks of all market capitalizations. SEBI requires multi-cap mutual funds to invest at least 25% of their funds in each market capitalization category – large, middle, and small.

Flexi cap equity funds:

Flexi-cap equity mutual funds are like multi-cap funds and can invest in stocks of different capitalizations. However, unlike multi-cap funds, flexi-cap funds can reduce their allocation in mid-and small-cap stocks to zero. This means flexi-cap mutual funds can invest heavily in large-cap stocks if required. There is no percentage restriction as per the market capitalization category.


Understand the mutual funds based on market capitalization and choose the right investment. Depending on your risk tolerance and return expectations, you can choose the mutual fund category that is most suitable. Use the Tata Capital Moneyfy app to read about equity mutual funds and analyze their market capitalization. You can also use the Moneyfy app to begin your mutual fund investment journey – lump sum or SIP (Systematic Investment Plan). The Moneyfy app allows you to monitor and manage your mutual fund investments.

Eula Boone

I have written professionally since 2010 and have been an investor since 2015. My finance blog, economydiva.com, is one of the most visited blogs in the world, with more than 3 million readers a month. I love sharing what I know about investing, saving, and managing money and providing practical tips on how to be a smart and savvy money manager.