You must have heard seasoned investors talking about their investments diversified across multiple caps or sizes. The terms may seem technical, but they simply categorize companies by their size and market value. Understanding these categories can help you build a balanced portfolio that fits your financial goals. Let’s break down what each category means and take a look at how they’ve performed over the past five years.

What Are Small-Cap, Mid-cap, and Large-Cap Stocks?

• Small-Cap Stocks: These are the “smaller” companies in the market, typically with a market value of less than 5,000 crore. They’re known for their growth potential but also for being quite risky and volatile. Think of them as the startups of the stock market-high rewards, but not without a bumpy ride. The Nifty Small Cap 100 tracks 100 of these companies, while the Small Cap 250 Index follows the top 250 small-cap stocks in India.
• Mid-Cap Stocks: Mid-cap companies are those with a market value between 5,000 core and 20,000 core. They strike a balance between stability and growth, offering investors the chance for moderate returns without as much risk as small-cap stocks. The Mid Cap Index is a good indicator of how these mid-sized companies are performing.
• Large-Cap Stocks: Large-cap companies are the big players, with a market capitalization above 20,000 crore. They are industry leaders, like Reliance Industries or TCS, and offer stability and steady returns. These stocks are less likely to see wild price swings, making them a safer bet for cautious investors.

How Have These Stocks Performed in the Past 5 Years?

1. Small-Cap Index:

• Small-cap stocks have had quite a rollercoaster over the past five years. From 2018 to 2019, they struggled due to global economic slowdowns. But in 2021, small-caps made a big comeback post-pandemic, with the Nifty Small Cap 100 surging by over 50%. That said, the volatility in this category means that it’s not for the faint-hearted.

2. Mid-Cap Index:

• Mid-cap stocks have provided more balanced returns. After facing some tough times in 2018 and early 2019, mid-caps rebounded nicely during the economic recovery in 2021. Structural changes in India’s economy and rising consumer demand helped mid-caps deliver close to 40% returns in 2023, making them a solid choice for steady growth.

3. Large-Cap Stocks:

• Large-cap stocks have been the steadiest performers. Although they dipped in 2018 due to global uncertainties like trade wars, large-cap stocks quickly bounced back. From 2020 onwards, big companies, represented by indices like the Nifty 50, have have consistently delivered returns of 15-20% annually. This makes them a good option if you’re looking for stability, especially during turbulent times like the pandemic.

Why Should You Diversify Across Small-Cap, Mid-Cap, and Large-Cap Stocks?

When it comes to investing, diversification is key to managing risk and maximizing potential returns. Different market cap categories offer unique advantages:

• Small-Cap Stocks: They have the potential for high growth, but they’re also the most volatile. If you’re willing to take on more risk and can stay invested for the long term, adding small-cap stocks or mutual funds like those that track the Nifty Small Cap 100 or the Small Cap 250 Index could pay off during economic upswings.