Basics of Mutual Fund

Mutual Fund

Do you understand the many terms used in investing in mutual funds? Do you struggle to understand the terminology used in mutual funds? Alternatively, are you unsure which mutual funds to buy as your next investment?

If the answer to the above questions is, yes, then let us explain you to in easy to understand manner.

It's possible that you were given advice telling you to invest in large- or mid-cap funds instead of small-cap funds. But what do the terms "large cap," "mid-cap," and "small cap" funds mean? How do you distinguish between large-cap, mid-cap, and small-cap funds? Let's start with the fundamentals to comprehend what the word "market cap" means.

What is market cap?

The technical term market capitalization is also known as market cap. Therefore, market capitalization is the market value of a company's outstanding shares. Market capitalization is the total market value of all the shares owned by a company's shareholders.

Market capitalization = total number of outstanding shares multiplied by the market price of each share.

Let’s understand this better with an example:

Shares of Company A are traded on a stock exchange. The market capitalization of business A would be Rs. 5 crores (1 lakh shares x Rs. 500) if it has around 1 lakh shares that are now trading at Rs. 500 each on the stock market.

So, based on market capitalization, companies are classified as large-cap, mid-cap, and small-cap.

The Securities and Exchange Board of India has defined certain rules to classify companies according to their market cap, to maintain uniformity in the financial markets for investments and trading.

Large-cap companies:

The stock exchanges are made up of all listed businesses ranked based on their market capitalization, per SEBI regulations. Large-cap firms are defined as the top 100 stock market corporations. Large-cap funds are mutual funds that invest in the equities of these large company firms.

The track record of large-cap corporations is often quite good. These businesses have a market valuation of at least Rs. 20,000 crores. These stocks are included in broad market indices like NIFTY and SENSEX due to their extremely significant market presence.

Mid-cap companies:

As per SEBI’s classification, the companies from rankings 101 to 250 in terms of market capitalization are known as mid-cap companies. Their market cap generally tends to range from Rs. 5,000 to Rs. 20,000 crores. Since mid-cap companies have a moderate to strong market presence, they may or may not be widely included in broad market indices.

Small cap companies:

According to SEBI regulations, small-cap companies are defined as those businesses with a market ranking of 251 or lower. Small-cap businesses typically don't have a long history. These firms may be relatively recent start-ups or those that are still in the planning stages.

In terms of market cap, these companies generally come in below Rs. 5,000 crores. Consequently, these companies enjoy little to no market presence and are mostly not included in broad market indices.

Conclusion:

Before investing in mutual funds, ensure you are aligned with your risk profile and investment goals.

Location: India

Comments

Post a Comment

Popular posts from this blog

MONEY MANAGEMENT

Image
  Regardless of how much (or little) you know about investments, stock markets, credit cards, and insurance, your financial planning is most likely to fail if you don't have a firm grasp of your money. Hence, having a solid understanding of your finances, or your financial situation, and being able to manage them intelligently, is the most crucial stage in financial planning. So, what is your financial situation? 1) Earnings and Expenses: Your expenses matter more than earnings when it comes to determining how much money you have on hand after meeting your needs and wants. You must create a 'balance' between your spending and earning patterns if you want to be in a better financial state. Creating a ‘balance’ between your earning and spending patterns will create a benchmark for planning your finances. Normally, a healthy bank balance at the end of the month indicates a trend towards a good financial position, and a zero or negative bank balance at the end of most mo
Read more

ARE YOU WORRIED ABOUT PRE-EXISTING DISEASES WHILE BUYING HEALTH INSURANCE?

Image
  Introduction Ailments that the insured had prior to purchasing health insurance are known as pre-existing conditions. According to IRDAI, a condition is considered pre-existing if the insured person received a diagnosis of it up to 48 months before obtaining the insurance. All chronic disorders, such as diabetes, asthma, high blood pressure, thyroid disease, and more, are regarded as pre-existing ailments. Pre-existing diseases in a health insurance plan: There is a pre-existing condition clause in every health insurance policy. For those who have pre-existing diseases, buying health insurance may be difficult. Prior to learning about the limitations on coverage for pre-existing conditions, determine what a pre-existing health condition actually implies. Pre-existing diseases waiting: In the context of health insurance, the waiting period refers to the period of time before which the insured person is not eligible to receive benefits under the policy for the listed diseases
Read more

BALANCED ADVANTAGE FUNDS

Image
Balanced advantage funds are a type of hybrid fund that invests in both, equities and debt instruments. There is no set fixed threshold for exposure to a particular asset class. These funds can also modify their asset allocation as per the market conditions. When the equity market is trading at an all-time high, fund managers may increase the exposure to equities, while reducing it in falling stock markets. Unlike other funds, Balanced Advantage funds not only offer a mix of growth and fixed-income instruments but can also switch between asset classes dynamically. Balanced Advantage Funds asset allocation is determined by the dynamic asset allocation methodology. How do they work? Balanced advantage funds have a unique rebalance strategy where they can drastically reduce or increase the asset allocation towards equities or debt. Additionally, if the fund manager anticipates a rise in valuations and key indices, they might increase their equity exposure. But when they anticipate a m
Read more