The mutual funds have long been considered the perfect way of investment and a way of further rolling on money in company securities. The funds are made to be available to the public on a regular basis. This is what can serve as the basic definition of mutual funds. The open-end investment companies are what serve as the main promoter of such mutual funds.
Availability and Types:
Thorough professionals to mere beginners the mutual funds have its appeal reserved for all in its own unique way. The availability and types of the mutual funds that are currently in the market are diverse and plentiful. It is quite natural for eager investors to find themselves lost at this abundance wondering where from to start investing.
Before delving further in the likely parameters that one is to consider before investing in mutual funds, a quick look can be set forth at the available types. When mutual funds have found worldwide popularity, it is but natural that the types of mutual funds in India will also find some takers. The mutual funds are more commonly found in 3 possible types;
- The large cap
- Mid-cap and
- Small cap.
The cap term, it may be said is derived from the market capitalization. The capitalization is said to be the reference to the rupee value of the total outstanding number of shares for a company. The market cap gives away a lot of detail on the company’s financial strength.
The blue-chip companies are the ones that have large cap stocks. These companies have a high percentage of liquidity. The mid-cap stocks belong to the companies that have a good liquidity level but are medium in terms of financial strength and size. The small cap stocks enjoy the least amount of liquidity being small. The stocks are divided suitably in terms of sizes for easy segregation. The division happens based on market capitalization. The top 50 stocks are the large caps, while the next 200 in terms of this capitalization is mid-caps. The final 500 to follow are the small cap stocks.
This can be further emphasized by the Indian standards of labelling mutual fund stocks. The Nifty 50, Nifty Mid Cap 100, Nifty Small Cap 100 or BSE 500 is one such label. It is quite a surprising fact that the caps are very much proportional and dependent irrespective of their size. Thus if the large cap stocks are doing well, there is a likely chance that the midcap and the smallcap funds will also yield good results. On the other hand, a negative return is also likely to fetch bad results in most occasions.
A Couple of Points to Note:
It has been found by investors over the length of time some aspects that are very well associated with probabilities and facts which are more of conclusions. These can be, firstly, the mid and small cap mutual funds are more volatile than the large caps. Different fund investment should be avoided in all circumstances. For people eyeing a particular time when the market is likely to revive, short and medium cap funds are the best investment option.