The key similarities and differences between a small company equity fund (also called a small cap...

The key similarities and differences between a small company equity fund (also called a small cap fund) and ordinary equity fund (also called a large cap fund).

Expert Solution

Large Cap Funds: The fund invests its corpus in companies with large market capitalization. Companies with large market capitalization are strong players in their field of business. Their proven business model, tried and tested for many years helps them to gain the maximum confidence of shareholders.

The companies with large market caps are considered compounders of wealth over a long time period and pay regular dividend. They deliver a steady return on investment on relatively lower risk compared to smallcap. Investors with a longer time view with less risk in equity can consider the fund.

SmallCap Funds: Investment in small cap funds possess a high risk of volatility and are most vulnerable to business and economic downturn. The fund invests in small cap companies which have the good business model and high growth potential. Small cap funds have huge potential for upside movement. The fund is suitable for investors seeking higher returns and has high risk taking appetite.

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