A sneak peek to Large Cap, Mid Cap and Small Cap Stocks

Market regulator, Securities and exchange board of India (SEBI) in a circular dated October 6, clarified on categorisation and rationalisation of mutual fund schemes. Currently, there is no uniformity in the definition of market capitalisation. Most of the fund houses have their own definition of market capitalisation in terms of which stocks are large, mid and small cap. Hence a company falling in the mid-cap of one fund house may be part of the small cap for another fund house.

Since every market cap stock has its own risk-reward profile. An investor takes exposure to a fund on the basis of its style of investment, which fulfils his objective. Ideally, the fund should be holding stocks that fits what has been mentioned in the fund's objectives. Hence if a retiree is investing in large-cap fund with the objective of stable returns the fund should invest in large cap. However, in the absence of any uniformity in the definition of market cap, the fund might be investing in a mid-cap stock. This might not have the desired risk-reward return. Hence defeating the purpose of his decision to invest in that fund.

To keep this sanctity and bring the desired uniformity in the practice across Mutual Funds and to standardize the scheme categories and characteristics of each category, SEBI has decided to define large cap, mid cap and small cap.

Large Cap: 1st -100th company in terms of full market capitalization

Mid Cap: 101st -250th company in terms of full market capitalization

Small Cap: 251st company onwards in terms of full market capitalization

Although it will take some time to implement these definitions and bring uniformity across fund houses, AMFI has in consultation with SEBI and Stock Exchanges prepared the list of stocks.

Following is the list of the number of companies in different market capitalisation along with the range of market cap.