Large Cap, Mid Cap, or Small Cap SIP – Which is Better for Long-Term Investing?
Table of Contents
Investors often wonder which market cap category is best when setting up a Systematic Investment Plan (SIP) – Large Cap, Mid Cap, or Small Cap. Let’s break down these segments using data from the WhiteOak Capital Mutual Fund study on SIP returns.
Key Characteristics of Market Cap Categories:
Large Cap Funds:
🔹 Invest in established, stable companies.
🔹 Offer relatively lower risk and stable returns.
Mid Cap Funds:
🔹 Invest in mid-sized companies with growth potential.
🔹 Offer a balance of risk and return.
Small Cap Funds:
🔹 Invest in smaller, emerging companies.
🔹 Offer higher growth potential but come with significant risk and volatility.
Successful SIP: The Smart Investor’s Choice!
A successful SIP is more about “Starting Early”, maintaining the discipline of “Investing Regularly”, investing for the “Long Term” to achieve our “Financial Goals” and less about “Which Date”, “Which Frequency”, “At what stage of the Market Cycle” etc.
Historical SIP Performance (April 2005 – May 2024)
| Metric | Nifty 100 TRI (Large Cap) | Nifty Midcap 150 TRI (Mid Cap) | Nifty Smallcap 250 TRI (Small Cap) |
| Minimum Return | 4.3% | 6.0% | -0.4% |
| Maximum Return | 16.3% | 21.7% | 20.4% |
| Average Return | 12.7% | 16.9% | 14.1% |
| Median Return | 12.8% | 17.1% | 14.6% |
| % Times Positive Return | 100% | 100% | 99% |
| % Times > 10% Return | 92% | 97% | 85% |
| % Times > 12% Return | 68% | 95% | 76% |
| % Times > 15% Return | 9% | 76% | 48% |
10 Year Monthly Rolling (% XIRR) Return considered from April 2005 to May 2024, first observation recorded on 1-Apr-15.
Key Takeaways
Lower Volatility, Steady Returns:
🔸 Large Cap funds delivered consistent positive returns with lower volatility.
🔸 Investors prioritizing stability may prefer this category.
High Growth Potential:
🔸 Mid Cap funds outperformed others in terms of average and maximum returns, making them suitable for investors seeking balanced risk and returns.
High Risk-High Reward:
🔸 Small Cap funds demonstrated the potential for higher returns but also came with higher risk and occasional negative returns.
Final Recommendation:
1) For conservative investors focused on capital preservation, Large Cap funds offer stability.
2) For moderate to high risk investors looking for growth, Mid Cap funds are an excellent choice due to their consistent historical performance.
While each market cap segment has its pros and cons, historical data suggests that a diversified SIP portfolio spread across these segments can maximize returns while mitigating risks. As always, consult with a financial advisor before making investment decisions.
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