Which is a better investment option for mutual fund SIPs? Large-cap, midcap or smallcap?

Mutual funds are diverse investments due to the host of various instruments they offer to park your hard-earned money. There are equity funds, index funds, debt funds, money-market funds, ETFs, and income funds among others. These instruments are further categorised into various options like large-cap, small-cap or midcap, etc. Although holding a somewhat similar pattern to trading in normal equity shares, mutual funds however has a series of benefits when it comes to investments such as risk-aversion, professional management, affordability, liquidity, low-cost, well-regulated, certain tax exemptions, and much more. One of the best methods to invest in mutual funds are the Systematic Investment Plan (SIP). But which option in MFs is better for investment?

Large Cap, Mid Cap, or Small Cap SIP? Which option is better to invest in mutual funds?

According to WhiteOak Capital Mutual Funds analysis, an average Large Cap stock is generally less volatile than an average Small and Mid Cap stock and provides stability to the portfolio. However, the Small and Mid Cap (SMID) segments may offer many opportunities for potential higher growth in the long run.

Among the three market cap segments, WhiteOak analysis highlights that the mid-cap segment was a good investment option for investors seeking to invest via the long-term SIP route.

Data from WhiteOak which takes into consideration 10 Year Monthly Rolling (% XIRR) Return from April 2005 to September 2022 revealed that the average SIP return of Nifty 100 TRI (large-caps) is 12.4%, while the average return is 13.4% of Nifty Smallcap 250. Nifty Midcap 150 surpassed these two indexes with an average return of 16.4%.

Meanwhile, the median SIP return in Nifty 100 TRI is 12.5% and that of Nifty SmallCap 250 is around 14.2%. On the other hand, Nifty Midcap 150 recorded an average SIP return of 16.5%.

In percentage times, Nifty 100 TRI gives more than 10% return is around 90%, while the percentage times is highest in Nifty Midcap 150 with 97% and lowest in Nifty SmallCap 250 with 82%. The percentage times of more than 15% return is huge in the Nifty Midcap 150 around 71%, while that of the Nifty SmallCap 250 is around 42% however Nifty 100 records a single-digit 8%.

Notably, past performance may or may not be sustained in the future. Index performance does not signify scheme performance.

WhiteOak analysis report said that the midcap segment can be a good investment option for investors seeking to invest via the long-term SIP route!

According to NSE website, NIFTY 100 is a diversified 100 stock index representing major sectors of the economy. This index intends to measure the performance of large market capitalisation companies.

Moreover, Nifty Midcap 150 represents the next 150 companies (companies ranked 101-250) based on full market capitalisation from the NIFTY 500. This index intends to measure the performance of mid-market capitalisation companies.

Further, NIFTY Smallcap 250 represents the balance of 250 companies (companies ranked 251-500) from NIFTY 500. This index intends to measure the performance of small market capitalisation companies.

As per the WhiteOak report, over the years, SIP a feature offered by Mutual Funds has become a household name. Its popularity among investors can be seen from the adjacent graph, which depicts growth in monthly SIP contribution by investors over the last six years.

This year, contributions in SIPs have witnessed a significant rise from an average monthly contribution of ₹8,007 crore in FY21 to ₹10,381 crore in FY22 and further to a whopping ₹12,372 crore in the first six months of FY23.

From April to September 2022, the contributions in SIPs stood at ₹74,234 crore -- which is already nearly 60% of a total contribution of ₹1,24,566 crore recorded in the overall FY22. In September 2022 alone, SIPs' contribution stand at ₹12,976 crore. Since May 2022, contributions to SIPs have stayed above ₹12,000 crore.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.