What is market capitalisation?
Market capitalisation is the total market value of a company’s outstanding shares. It is calculated as:Market Cap = Share Price × Total Outstanding Shares.
Why is market capitalisation important for investors?
Market capitalisation helps investors understand a company’s size, stability, and risk profile. It is useful for portfolio construction, risk assessment, and comparing companies.
How does SEBI use market capitalisation?
SEBI uses market capitalisation to classify companies into large-cap, mid-cap, and small-cap categories, providing clarity and standardisation for investors and mutual funds.
What are large-cap companies?
Large-cap companies are the top 100 companies by market capitalisation. They are well-established, relatively stable, and less volatile, making them suitable for conservative investors.
What defines mid-cap companies?
Mid-cap companies are ranked from 101 to 250 by market capitalisation. They offer a balance between growth potential and stability with moderate risk.
What are small-cap companies and their key risks?
Small-cap companies are ranked 251st and below by market capitalisation. They offer high growth potential but carry higher volatility, lower liquidity, and greater risk.
How does market cap classification affect mutual funds?
SEBI mandates minimum investment limits for mutual funds based on market cap categories, ensuring transparency and alignment with fund objectives.
Which investors are best suited for large-cap investments?
Large-cap investments are ideal for conservative investors seeking capital preservation, stable returns, and lower risk.
Why is diversification across market caps important?
Diversification across large, mid, and small-cap stocks helps balance risk and return while reducing dependence on a single market segment.