For effective risk management through Equity mutual funds its very important that mutual fund portfolio is comprising of schemes across market caps.Market is generally divided in to Large Caps,Mid caps and Small Caps based on market capitalization.
While creating mutual fund portfolio one should take care of funds applying different investment strategies.
Mutual fund portfolio can comprise of:
One Large Cap fund:
One large cap or Bluechip fund.Generally company having market cap of above 20,000 Crore can be considered as large cap.Investment is in well established stocks.
Recommended fund: SBI bluechip fund.
Two Mid – Small Cap funds:
Generally,stocks having market capital in between 5000 Crore to 20,000 crore are mid cap stocks and below as small cap funds.As very wide range of stocks having scalable business opportunities falls under this category..allocate Two funds for this capitalization. NAVs can be more volatile than pure large cap funds.
Recommended Funds: HDFC Mid Cap Opportunities,Franklin India Prima Fund
One Value Fund:
Value funds invests in stocks which are currently available at cheaper valuation.We as common investors do not understand much about technicals ..Value funds offer good opportunity to invest in cheap stocks.Generally fundamentals aren’t ignored.
Recommended Fund:ICICI Prudential Value Discovery Fund.
One Aggressive Growth Fund:
Fund manager will invest in stock where growth probability is higher.Scheme may take high risk & NAV may be volatile.
Recommended fund: Franklin India High Growth Companies Fund.
It is seen that definition of market caps changes with mutual fund company.Also market cap is dynamic parameter so it can not be as much strictly applicable but it is very much important for investor to have exposure across the market capitalization.
